Treasury Secretary Timothy Geithner revealed the new “Financial Stability Plan” on February 10, 2009. It’s thick with “why we need it” and thin on “exactly what it is.” He told Congress that he would open a website to disclose where all the bailout money was going. When asked if he would reveal where the first $350 billion went, he was a little vague on the details.
Senator Grassley (R-IA) asked him at the confirmation hearings about the Maiden Lane LLCs and the money he passed out to private, non-regulated companies. His written response then was “Confidentiality around the specific characteristics and performance of individual loans in the portfolio is maintained in order to allow the asset manager the flexibility to manage the assets in a way that maximizes the value of portfolio and mitigates risk of loss to the taxpayer.” In other words, he wouldn’t say. When asked “What specific additional disclosure would you support?” Tim’s response was “If confirmed, I look forward to working with you and with Chairman Bernanke on ways to respond to your suggestions and concerns.” Variations on the “If confirmed, I look forward to working on it” answer was cut and pasted into his 102 page written responses 104 times, or more than once per page.
Back in 2008 when the big bailout bucks were being passed around, we (and Congress) were led to believe that this was all being done to fix problems in housing and mortgage markets. Speaker of the House Nancy Pelosi (D-CA) said this in her speech on the floor before the vote: “We’re putting up $700 billion; we want the American people to get some of the upside. …[we] insisted that we would have forbearance on foreclosure. If we’re now going to own that [mortgage-backed securities] paper, that we would then have forbearance to help responsible homeowners stay in their home.” Three million homes went into foreclosure last year.
Speaker Pelosi went on to tell us that the bill would include “an end to the golden parachutes and a review and reform of the compensation for CEOs.” Excuse my cynicism but Tim Geithner took a $500,000 walk-away bonus when he left the Federal Reserve Bank of New York, the maximum earnings allowed under President Obama’s suggested compensation cap; but that was on top of his $400,000 salary which would put him over the limit. Obama appointee Deputy Secretary of State Jacob Lew took home just under $1.1 million last year as a managing director at Citi Alternative Investments, a unit of Citigroup, which so far took $45 billion in bailout money.
So, let’s add this up. Tim hides $330 billion from us while he’s at the Fed, refuses to tell Congress who it went to, refuses to tell Congress who Paulson gave the money to, and takes more than his share of compensation.
Now he wants us to believe that Treasury can “require all Financial Stability Plan recipients to participate in foreclosure mitigation plans.” Fool me once, shame on you. Fool me twice, shame on me. I, personally, don’t believe a word of it. And neither should you. It’s all baloney, bogus, phantom. They are paying lip service to the American taxpayers so you won’t send those faxes to Congress or throw shoes at the new President. They are passing the money to the same Democratic big wigs that paid for their election campaigns – just as they did in the past to the Republicans. Tim is shoveling more money to the same private companies that he previously sent freshly-printed Federal Reserve notes. Now he can also pass out Congressionally-approved money. While Congress struggled with spending $800 billion to directly stimulate economic activity in the US, Tim thumbed his nose at them by presenting a plan to spread around more than $2.5 trillion that won’t require their approval. That’s the way it is and I think it would be a very bad idea to stop him.
Yes, you read that right. I said it would be a bad idea to stop. I’m a fan of NASCAR racing. When a driver begins to lose control of the car and is sailing head first into a concrete wall at 190 miles per hour there is only one way to save it – stand on the gas. Your every instinct is to hit the brakes, to stop the car before you slam into the wall. But if you hit the brakes you’ll lose traction and control. By pressing down on the gas, you put power to the wheels which (hopefully) are still in contact with the track – with traction comes control and you can steer away from the wall. Oh, but it isn’t easy! Every cell in your monkey-cousin brain will scream: “Slam on the brakes!”
So, it’s like the economy is heading for the wall. And Tim has decided to hit the gas – another $100 billion for the banks, $1 trillion for private capital to put in junk bonds, $1 trillion for private investors to spend on junk loans, $600 billion for Fannie and Freddie’s debt – yet only $50 billion to reduce mortgage payments for “middle class homes” in foreclosure.
But even if we avoid hitting the wall, that doesn’t mean we don’t need to change the course. For years I have argued we need to fix the race track and improve the aerodynamics of the cars so they won’t head into the wall in the first place. I would insist that broker dealers have to deliver what they sell. I would prohibit the sale of derivatives in excess of the underlying assets. But that’s technical stuff, like requiring roof flaps in NASCAR (little flaps that come up when the car spins backwards to keep it from going airborne). It would prevent the really bad wrecks, but then no one would tune in on Sunday if there weren’t any wrecks, right?
Enjoy the show as Tim tries to keep from crashing into the wall. But don’t be fooled that he is fixing anything. Even if he pulls the economy out this time, the track is still broken and the cars are still not aerodynamically sound. They’ll wreck it again – as they did in 1981 (inflation so high that Treasury bonds paid 19%), in 1987 (October stock market crash of 23% was worst of all time), in 1991 (junk bond collapse and credit crunch) and in 2000 (the dot.com bust).
This will keep happening until we take the time to understand the real causes and put in real solutions. The solution is not now and has never been to throw money at it. This is the “junkie cousin” approach that Amy Poehler (Saturday Night Live) compared to the Original Bailout package: “It’s like you lend $100 to your junkie cousin to pay his rent. And when you run into him at the racetrack next week, you lend him another $50.”
At what point do you “get it” that your cousin is gambling away the money you lent him for the rent, that this is not really helping your cousin to kick junk? The solution is not throwing money around but accounting for all the money already out there (including the stocks, bonds and derivatives). It’s not more regulation, it’s enforcing rules that are already on the books. Real solutions take real work. I’m not hopeful that the US government and markets are willing to do the work. So, I’ll make sure I’m wearing a helmet with my seat-belt buckled for the next crash, say just around 2017.
Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets
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That’s fine! Financial
That’s fine! Financial disclosure is quite good for everyone. Transparency is what we need as of now. Are you in favored in LegiStorm? LegiStorm is currently taking the halls of Congress by, well, storm. LegiStorm makes the financial disclosure of Congressional spending on salaries, gifts, and trips, and members of Congress are not happy about it. Their personal loans are even on display, especially those who got favorable mortgage terms from banks they voted to bailout. (Chris Dodd springs to mind.) The website is decried by Congress persons as well as their (very well paid, we might add) staffers. Currently, it is free to view the website and what Senators, Representatives, and their staffers make and spend on trips and such. Many of them would get personal loans to keep LegiStorm under the radar.
Who's to blame?
It isn't Markopolos who worked without compensation to stop fraud. It wasn't Gary Aquirre who got fired for going after John Mack.
It is those whose votes are purchased by lobbyists, those who spin their stories because they are dependent on Wall Street advertising revenues, journalists who help to manipulate stocks, the regulators who fired Aguirre and ignored Markopolos, and those who denegrate the whistleblowers. The Columbia School of Journalism, who gives out the Pulitizer was bought off by Wall Street when the ugly truth was about to be exposed.
Former Congressman Richard Baker left his seat mid-term before lobbying rules went into effect, which were strengthened by extending the period of time one had to wait before contacting former associates, forcing Louisiana to fund the a special election. He joined the Managed Funds Association, a lobbyist group for the hedge fund industry. While in Congress he spoke for more regulation of FNM and FRE and warned of an impending disaster. The son of a Methodist Minister, he was able to suddenly see all the benefits of less regulation when being paid a million dollar salary. He will be remembered, not for his warnings of impending disaster, but forever be linked to Jim Chanos, the mouthpiece of the short-selling cabal, who tries to portray short-sellers as the good guys while these same people are trading ahead of analyst reports, feeding lies about companies to journalists to effect the price of a stock, denegrating whistleblowers and hiring thugs to intimidate companies they target. This is the same Chanos who is friendly with the prostitute who serviced Eliot Spitzer. If prostitution were legalized, some of the stigma for paid sex would go away and our officials could not be blackmailed and extorted for using prostitution. The real prostitutes are the sons of Methodist ministers who get a pension from public service even after they change sides.
No one person could have stopped the meltdown because the power and corruption on Wall Street is too great. Markopolos' failure to gain recognition until after the fact, and Aguirre's firing at the SEC are a sorry testiment to the fact. It all becomes apparent when the crisis is in full-bloom. Michel Milken spent two years in jail for what he did. Who is going to pay for this mess? Someone from the SEC? Chris Cox for his failure to enforce the laws and his lack of common sense? Linda Thomsen for firing Aguirre? The folks at the DTCC for lying about what they do? Hedge fund traders who work in concert to manipulate stocks and destroy companies like BS and LEH? The purveyors of fraudulent bonds? Shouldn't a person who destroys the economy spend more than two years in jail?
The most important place that could stop this is the DTCC. Why is the DTCC private? Why is it self-regulating? It is supposed to keep the market in balance with settling and clearing trades, yet it allows its owners to profit from collaterizing failed trades.
The best reporting of all of this come from deepcapture.com. They don't get their revenues from Wall Street. The latest story is another blockbuster. http://www.deepcapture.com/email-exposes-short-seller-plot-to-destroy-a-...
The previous one (a lecture with slide show by Judd Bagley) shows the lengths that Wall Street will go to hijack the truth. It also shows Bagley's dogged determination and what was necessary to expose who was behind the hijacking. Bagley will say some of it was luck because he is that kind of guy, but he's pretty smart having put all the clues together and documented it all. Before listening to this, ask yourself why the DTCC would be concerned about a definition at Wikipedia. http://www.deepcapture.com/lecture-on-abuse-of-social-media-by-stock-man...
If you listened to Markopolos, you know that the SEC doesn't provide their people with libraries. Where do you go to find out about someone or some definition? What comes up first? Changing one word has brought down the market. Instead of "borrow" stock, the shorts were able to put "locate" stock in the SEC rules and it allowed shorts to counterfeit shares. One word... If an illegal activity is described as "controversial" rather than "illegal" at Wikipedia, it makes one think it is up for debate.
Did the recission of the uptick rule and rampant unregulated short-selling bring about the demise of BS and LEH? Was Chris Cox responsible for the world financial crisis? He certainly didn't use the tools he had to stop it. Did he stop the subpoenas that were issued to journalists who were accused of market manipulation? He certainly did. There were so many points at which he could have intervened and lessened the crisis. Mr. Cox scores less than zero. He deserves his place in history.
We can hope that Mary Sharpiro will not be so weak and fickle.
There might have been another person who could have stopped it. No one person could have created the problem. It took a band of deregulators, criminals in the SRO's, criminals on Wall Street and criminal journalists to pull this off. The Head of FINRA could have stopped it, had she been qualified. Now that she is qualified and sees the big picture... she might just use the tools. Don't hold your breath.
Fixing the situation long term
Do people want more jobs created in our country or less?
Do people want to encourage more savings in our country or less?
Do people want Americans and foreigners to invest more money in our country or less?
American voters have the power in our Republic. Most people do not vote or do not vote in a responsible way. Voters decided to re-elect many members of Congress who created the mess. The main responsibility for the mess belongs to voters and members of Congress. Voters and members of Congress did not learn from the Savings and Loans Crisis. Voters and members of Congress should expect businesses to often be extremely stupid and that is why COMPETENT regulation is necessary.
The stupidest thing to do in a financial crisis like we are experiencing now is to raise capital gains taxes and the corporate tax rate or threaten to do so.
If you want to encourage savings and investment, reduce taxes on savings and investments.
If you want businesses to create jobs and be better able to obtain capital, reduce the corporate tax rate.
This is logic. This is strategy.
Our national debt was less than 1 trillion dollars on January 20, 1981. It is now more than 10 trillion dollars.
Do you care if the money you have now has much value in the future? Have people forgotten about the possibility of very high inflation?
To reduce the national debt, many sales taxes on wealthy people and others need to be increased and many sales taxes our country has not had in a while we need to have again. We may need to have many sales taxes we have never had before. I discuss dealing with the financial crisis, the Securities Turnover Excise Tax, and other sales taxes on my profile http://www.newgeography.com/users/kenstremsky
If you want to reduce the amount of harm the federal government causes, you should support Amendments to the United States Constitution that increase the power of State Legislatures. I discuss this on http://www.newgeography.com/users/kenstremsky
Congress should eliminate the Federal Reserve or veto many of its decisions.
Congress may require Timothy Geithner to discuss every day with members of Congress how money is being spent going forward by passing a law requiring this. Congress may remove him if he does not discuss how money has been spent so far.
There is an election in 2010. Will non voters and voters vote in a responsible way or will they keep harming themselves and their children?
My website is http://www.myspace.com/kennethstremsky
I tried warning people about the Bush Administration when I ran for United States Senate in 2002 on The Green Papers at http://www.thegreenpapers.com/Vox/?20020721-0. I discussed the SEC and many other topics.
Sincerely,
Ken Stremsky