Month: March 2009

Larry Summers in a Nutshell

No Comments

CONGRESS PASSES WIDE-RANGING BILL EASING BANK LAWS, the New York Times, November 5, 1999:

“Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” Treasury Secretary Lawrence H. Summers said. “This historic legislation will better enable American companies to compete in the new economy.”

And folks who got it right:

“I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930’s is true in 2010,” said Senator Byron L. Dorgan, Democrat of North Dakota. “I wasn’t around during the 1930’s or the debate over Glass-Steagall. But I was here in the early 1980’s when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.”

Senator Paul Wellstone, Democrat of Minnesota, said that Congress had “seemed determined to unlearn the lessons from our past mistakes.”

“Scores of banks failed in the Great Depression as a result of unsound banking practices, and their failure only deepened the crisis,” Mr. Wellstone said. “Glass-Steagall was intended to protect our financial system by insulating commercial banking from other forms of risk. It was one of several stabilizers designed to keep a similar tragedy from recurring. Now Congress is about to repeal that economic stabilizer without putting any comparable safeguard in its place.”

So, I’m so glad that Lawrence Summers’ astonishing brilliance and foresight are at the disposal of the President of the United States of America.

Economics Update

No Comments

Well, we have some good news today, with both durable goods orders and new home sales up in February on a monthly basis, though on a year over year basis, durable goods are still down 22%, and home sales are still down 41% year over year, so it may mean nothing, or it may be, to quote paraphrase Churchill, the end of the beginning as opposed to the beginning of the end.

The spike in mortgage applications may reinforce this news, or it may just be a lot of people refinancing their mortgages.

Certainly with California home prices down 41% year over year, this end game is likely to to be ugly anyway.

In the mean time, in the world of government finance, the Fed has started buying US treasuries to further push down interest rates, and across the pond, a U.K. bond auction has failed for the first time in 7 years.

There were not enough buyers there.

In energy, oil was down slightly, and in currency, the dollar was mixed against other major currencies.

Senator Whitehouse Shows Us Why It’s Better to Elect a Democrat Than the Best Republican

No Comments

Case in point, Lincoln Chaffee, defeated for the Senate by Sheldon Whitehouse in 2006, and now Whitehouse is putting forward a bill to protect consumers from abusive credit card companies.

Among its provisions in his Consumer Credit Fairness Act:

  • Lenders (not just credit cards, but also payday loans, auto loans, layaway, and overdraft charges) would be prohibited from making claims in bankruptcy if their interestrate were more than the yeild of the 30 year bond interest rate +15%.
  • The interest rate would be figured including all charges and penalty fees.
  • Removal of the means test for bankruptcy that was included in the 2005 “screw the consumer” bankruptcy law.

Electing Democrats make a difference.

OK, I May Be Wrong About Geithner

No Comments

Kevin Drum just raised an interesting point about what Geithner has been doing so far

If, several weeks ago, you had charged a task force with figuring out how to successfully nationalize a big bank, what do you think they’d say you had to do? Three things, at least: (1) you have to figure out a widely acceptable way to value the toxic assets on bank balance sheets, (2) you have to set up a fair and consistent test for evaluating bank solvency based on those values, and (3) you need to make sure you have the legal authority to take over a huge, multinational financial conglomerate in an orderly way. Is it just a coincidence that these are precisely the things Tim Geithner has set in motion over the past month? I wonder.

It’s an interesting point, and just today, while testifying before Congress, Geithner called for the power to place large bank holding companies into government receivership, backed up by Ben Bernanke.

So Mr. Drum’s thought that recent activities of Geithner and Bernanke, and by extension President Obama being a ploy is a possibility, though but I’m inclined to agree with Yves Smith the proprietoress of Naked Capitalism, whose beat is economics, and who knows more about economics, and the major players the economic community, than either Drum or me, and she thinks that the Office of Thrift Supervision (OTS)already has the authority to place AIG in receivership, and already answers to him.

Additionally, she notes that his request for additional power does not include any request for a receivership protocol, and concludes that this request is actually an attempt to give him more power to shovel more taxpayer dollars to the financial industry.

I would also note that Geithner, and his mentor, Larry Summers, have a history that stretches back decades, and there is nothing in what they have done, or are doing now, which would indicate that they would be inclined to do this…ever!

So, while Kevin Drum has an interesting wheels within wheels theory, I am more inclined to go with Nobel Prize winning economist Joseph Stiglitz, and simply say that Geithner’s plan is robbing US taxpayers.

But that’s my gut, and my sense that past is prologue.

The Upside of the Financial Meltdown: Mindless Imprisonment Edition

No Comments

It looks like the financial meltdown, and the reduction in tax revenues for local and state authorities have lead to a reevaluation of incarceration policies, which have led the US to have the largest prison population of any society in history: (Gulag nation)

For nearly three decades, most U.S. states have dealt with lawbreakers in two ways: Lock more of them up for longer periods, and build more prisons to hold them. Now many governments, out of money and buried under mounting prison costs, are reversing many of those policies and practices.

Some states, like Colorado and Nevada, are closing prisons. Others, like Kansas and New Jersey, have replaced jail time with community programs or other sanctions for people who violate parole. Kentucky lawmakers passed a bill this month that enhances the credits some inmates can earn toward release.

Obviously, it’s depressing that it’s taken a fiscal crisis to interject some sanity on the entire issue of over imprisoning our population, but I’ll take what I can get.

Hopefully this can make a dent in the “prison-industrial complex.”

Political Scabbing and Management Threats Against Labor

No Comments

So Arlen Spector has decided to cave, again, because of his fears of being primaried, and he has announced that he will vote against cloture on the Employee Free Choice Act, and Federal Express has said that it will cancel its contract to purchase Boeing aircraft if the EFCA passes.

I am not surprised at Spector, who has never seen a principled stance that he couldn’t weasel of, though I am surprised that FedEx, which has a long history of virulent and nasty anti-union activity, put a clause in their aircraft purchase contract that allowed them to cancel if unionizing there gets easier,* is a surprise.

Needless to say, if I need to send anything, I will use the use the US Post Office or UPS, rather than those C*cks*ck*rs.

*The EFCA would change how FedEx organizes, moving it from the National Railway Labor Act to the National Labor Relations Act, which means that parts of the company could unionize, as opposed to the whole company at once.

Labor Joins Israeli Coalition

No Comments

Benyamin Netanyahu and Ehud Barak have come to an agreement for a coalition government, and the Labor Party central committee voted to approve the deal, so it appears that there is now a governing coalition is Israel.

It appears that Netanyahu gave labor much more than just the Defense portfolio:

  • 5 Cabinet posts, including the Defense and Trade and Industry Ministries.
  • 2 Deputy ministry positions.
  • A fairly liberal economic policy, which includes:
    • Money for retraining workers
    • Funding for child care
    • A commitment not to cut salaries in the public sector
    • A commitment to increases in benefits for pensioners
    • An increased political role for the Histadrut, Israel’s organization of trade unions.

It’s clear from this deal that Netanyahu was desperate to have this, given Labor’s poor showing (only 13 seats), and it also represents a return by the Labor Party to the interests of, well, (small l) labor, which may go a long way towards distinguishing themselves from Kadima.

I think that Netanyahu could have gone right for the coalition, but the idea of actually having to follow up on his hard line rhetoric during the campaign scares him.

China Calls for Currency Basked as Reserve Instrument

No Comments

This would replace the US dollar as a reserve currency.

It would obviously weaken the US dollar in the long run, which is not necessarily a bad thing, the “strong dollar” policy of Robert Rubin (and Larry Summers, and Timothy Geithner, and Ben Bernanke) benefits Wall Street at the expense of main street, and is long term unsustainable.

It is unclear to me as to whether this is a real move for change, or simply an attempt by China to assert itself on the world economic stage, though.

Economics Update

No Comments

So the latest investor confidence survey is down, no big surprise there, things are still not looking good.

Case in point, Fitch ratings is warning on prime grade residential mortgage backed securities (RMBS) created between 2005 and 2007 because so many of the mortgage holders are under water.

In energy, oil fell, though it’s still above $50/bbl, on profit taking from yesterday’s price increase.

In currency, the Dollar rose as people went back to it as a safe haven, and the Yen fell, because yields are so low in Japan.

Banking Industry Threatens Obama Administration

No Comments

That’s the subtext of this Wall Street Journal article on how Obama is dealing with the financial industry.

The bankers are saying, “If we don’t get our bonuses, we will destroy our companies and the economy.”

As Ezra Klein notes, patriotism is a joke for the super-rich bankers who run Wall Street:

But whenever it comes up in conversation, I’m shocked at the depth of my own fury. And here’s why: Not to sound naive about this, but the absence of patriotism that galls. The lack of responsibility is sickening. These bankers delivered an almost mortal wound to the American economy. Their actions threw millions out of work and wrecked the retirement savings of tens of millions more. It is no exaggeration to say that they will cost us more than 9/11.

And you cannot negotiate with terrorists.

Yoo May Have Tenure Revoked

No Comments

Basically, the question is whether the legal opinions that John Yoo supplied to Bush and His Evil Minions&trade are so outrageous as to justify the termination of his tenure at UC Berkeley law school.

I am of the opinion that Yoo actually broke the law, using the Nuremberg precedents for trying judges and lawyers.

One caveat about this article, ignore Alan Dershowitz, who has actually been a big supporter of torture, going so far as to suggest that judges should authorize it, and not an opponent of Yoo’s position as the writer states.

Barney Frank Walks Away from Fed as System Risk Regulator

No Comments

It looks like there will be some real good coming from the AIG bonus fiasco, as Barney Frank is taking a few steps back from his idea of the Federal Reserve as the über regulator of the economy:

A proposal to put the Federal Reserve in charge of market oversight is losing congressional support after its main backer, Barney Frank, said criticism over American International Group Inc. “undercuts” his proposal.

“There’s still a need for a systemic-risk regulator,” Frank, a Massachusetts Democrat who chairs the House Financial Services Committee, said yesterday. “The argument for the Fed alone has lost a lot of political support. I think that’s now got to be re-looked at.”

Senate Banking Committee Chairman Christopher Dodd and Richard Shelby, the panel’s top Republican, said March 19 they are reluctant to expand the Fed’s role, faulting the central bank for lapses leading to the financial crisis.

When one considers how opaque the operations of the Federal Reserve are, and how, of all the regulatory agencies, it was the one that failed the worst, the others being hamstrung through legislation or executive initiative, Dodd and Shelby are right to be dubious of the fed.

Just ask yourself this question: Do you want Alan “Bubbles” Greenspan to be the systemic risk regulator for the economy?

US Tried to Silence Detainee to Cover Up Torture

No Comments

US Government lawyers attempted to get Binyam Mohamed, the Ethopian detained at Guantanamo, to sign an aggreement not to discuss his treatment as a condition for his release.

Since Mohamed is alleging illegal torture, and the lawyers in question had reason to believe that there was a possibility of criminal prosecution, I do not see how this could be anything but a slam dunk case of obstruction of justice:

U.S. government lawyers tried to get a British resident held at Guantanamo Bay to sign a deal saying he had never been tortured and that he would not speak to the media as a condition of his release, according to documents presented in Britain’s High Court.

U.S. lawyers also wanted Binyam Mohamed, an Ethiopian citizen held at Guantanamo for more than 4 years, to plead guilty to secure his freedom, even though he was never charged with a crime, according to documents released by two judges who ruled in the High Court case.

The documents, relating to a ruling the judges made last October, reveal the U.S. military wanted Mohamed to agree not to sue the United States or any of its allies, and that any rights to compensation should be assigned to the U.S. government.

Any lawyers among my reader(s) want to weigh in on this?

Scatological Explanation of the Geithner Plan

No Comments

So, I was on a private BBS formed out of the ashes of Netslaves, and someone asked the following:

CNN keeps talking about it raising the DOW today, but I have no idea what it actually is supposed to do.

So I quickly riffed on this, and the response was very positive, so I thought that I should share my (somewhat profane) explanation with the world:

Short:

  • Place your hand in your pocket.
  • Remove wallet
  • Hand to Wall Street Executive.

Longer version:

  • The Treasury/FDIC/FED will make non recourse loans to allow investors to buy into the big sh@#pile of mortgage backed securities (MBS), credit default swaps (CDS) and other alphabet soup so that they buyer will put down about 3% for a 20% stake in this sh@#.
  • A non recourse loan means that if the investment fails, the lender (i.e. the taxpayer) takes back the sh@#, and the loan is settled, basically, they are only out their 3% (or less) down payment.
  • Basically, it’s a subsidy to the big banks and investment houses, who created the sh@#, because the small investor cannot get the sh@# for cash deal without going through the big banks and investment houses, and paying a sh@# load of commissions.
  • This has the effect of creating a taxpayer subsidy for the sh@# that is (at least, there are other programs that feed in) of at least 30%.
  • So eat your sh@# sandwich, and know that somewhere a Wall Street banker is spending your money on some prostitute to sh@# on him.

What can I say but sh@#?