Frequent guest blogger Martin Breen is back with another entry. Martin, by now I know what you are against, but I don't know what you support. Are there any financial regulations pending in congress that you support? Do you like Arianna Huffington's push to move money to local banks? Are you against the tax on some banks that administration has supported?
I am also what local candidates you support.
Here is his latest entry:
The Adventures of Fedman and the Temple of Doom Otherwise Known as AIG By Martin BreenIf you hear our Treasury Secretary, Timothy Geithner, tell it, he and his banker friends saved the world on a blustery fall day in September 2008 when they bailed out AIG and saved us from certain doom. Good old Timmy recently told this tale to one of the Congressional Oversight Committees, namely that he needed to bailout AIG as its bankruptcy would have caused the collapse of the financial markets. Talk about grandiose. There's nothing more surreal than watching this Spock wannabe puff out his chest and suggest how he saved the world. Never mind the fact that he and the bankers caused the crisis. Indeed, if Superman caused most the problems that he was trying to fix, then I don't think anyone would think he was very "super." Someone needs to give Timmy a reality check - you're not a superhero, you're the villain.
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First, Superhero's don't blame a computer tax software for the fact that they tried to evade their income taxes. Second, if you respond to a financial panic by panicking - you're definitely not a Superhero. Finally, throughout his testimony, he keeps stating that if Congress just enacts President Obama's Bank Tax, we'll get all the money back. Note to Superhero, I call him Fedman; I have never seen Superman or Batman tax the bad guys into submission. Seems pretty weak even for Fedman.At one point in his overwrought testimony, Geithner explains why he had to pay the counterparties (companies that bought credit default swaps insuring mortgage backed securities) 100 cents on the dollar - supposedly because that's what the contract said and when the counterparties were asked if they would take less, they said no. Despite the fact that market value was only 48 cents on the dollar, Geithner paid the full freight. Hey Fedman, it's called negotiation. They say no, and then you say no. Then you walk out in a huff and slam the door behind you, rattling the whole building. It's Superhero 101 - they come running back, willing to take pennies on the dollar.
And another thing Fedman, Counterparties (i.e., those menses' at Goldman Sachs) were not victims. If they were dumb enough to buy insurance from a company that had no actual collateral and put nothing in reserve, they deserve to get nothing. The Counterparties got taken - I don't see a problem - how is it a taxpayer issue? Isn't it simply one dog eating another? Isn't that exactly what you Gordon Gekko's preach when you're hitting the "diamond" run at Telluride?
Let's face it Timmy, one of the major flaws with this whole Superhero plan was that you were saving the world by saving the criminal - another major breach of Superhero etiquette. Just like President Obama's statement on torture that it is a false choice that Americans needed to violate its core principles to protect us from Terrorists, so too is it a false choice that we needed to save AIG to save Main Street. There were other options available and all of them centered on Main Street, not Wall Street. In fact, since Fedman (and the prior Fedman, Paulson) world view started and ended with Wall Street, their view was myopic at best. If Main Street needed credit then instead of taking Main Street's money (taxes) and giving it to the banks to loan back to us, why not just let Main Street keep it in the form of tax cuts? If you were really a Superhero, you would have known that?
Let me tackle some of Geithner's biggest reasons for giving the bailouts to AIG: (1) He claimed that Commercial Paper Market would freeze and other financial institutions would not lend. Guess what? We bailed out AIG and the credit markets still froze. In fact, the Fed, commenced another program called the CPFF (Commercial Paper Funding Facility) that pumped billions into this market. This was what actually got the market going again, not the AIG bailout. (2) He claimed once the Government authorized the original $86 billion, that he had to protect that investment by ultimately buying the underlying collateral (sub-prime mortgages) that was the subject of the credit default swaps. The flaw in his superpower reasoning is that the main issue was the credit rating agencies downgrading of AIG which in turn caused more collateral calls. So why not simply stop the ability of the credit rating agencies to downgrade them? After all, it's not like they knew what they were doing; remember all those ridiculous AA/AAA ratings for the subprimes? Indeed, one thing that is clear today is that the ratings did not capture the true risk of many deals because the rating agencies were more concerned with their own bottom lines. (3) Lastly, he claimed that since AIG had nearly 75 million customers, their sudden bankruptcy would create havoc in the insurance markets. Do you really think that strange talking Gecko would not have loved the opportunity to underwrite 75 million new contracts? I am pretty sure he would have down it in less than fifteen minutes and saved us a ton on car insurance.
Even Section 13(3) of the Federal Reserve Act which Geithner relies on for the authority to bailout AIG does not specifically grant the Federal Reserve these unlimited powers. Instead, it vaguely focuses on providing liquidity to the markets in times of severe stress. It's a real stretch to argue that the Fed, made up of non-elected officials, has an unfettered right to give companies any amount of money it deems necessary with the only oversight coming by Congress, long after the fact.
In fact, Section 13(3) has been used only twice since 1913, for negligible amounts. An example, after 9/11, many experts called for the Fed to use its power to save the Airline Industry, which was destitute because everyone was afraid to fly. But after much internal debate, it was decided to let the airlines go into bankruptcy, which many have recently emerged stronger than ever. Since both the financial and airline industry are vital to American commerce, it is not a coincidence that the financial industry has been treated so differently. Indeed, it required nearly a perfect storm of greed, hubris and fear, for the fleecing to occur.
The real crime was not bailing out AIG to the tune of $186 billion, but rather allowing it to survive. One thing is very clear, AIG Management did almost nothing right and AIG was a diseased carcass that should be dust by now. The fact that they're paying themselves million dollar bonuses should tell you everything you need to know about this mutant company where up is down and failure is success.
The best part of Geithner's testimony is near the end when he states: "I am personally very confident that if we (had) not acted, the crisis would have caused more devastation and would have cost far more money."
Really? When the argument for something is an unprovable personal plea like it would have been a thousand times worse, you should not trust the claim. Hey Fedman, your opinion (and the people like you) means nothing to us. Don't you get it? You were completely wrong in 2008, suddenly now, you have abject clarity. Sorry Fedman, it's time to turn in your Spock ears.
A very good overview, Martin. Witty. also.
Niov 11, 2008 marks the day that Team Obama turned its back on their pledges to reform the banking & credit industries. On that day Obama's economic advisor team was replaced by Rahm Emanuel's & Wall Street's proteges. It was a sign of the coming mess.
Paying nothing wasn't an option but paying dollar for dollar was stupid. It was the Bush Republican's grand finale. We should have paid 30 cents on the dollar at the most.
Brian,
I would like Congress to reinstate Glass Steagall and repeal the Commodities Futures Act both of which I have addressed in prior essays.
I would also like Congress to consider shareholder reform as Wall Street currently has the game rigged against ordinary shareholders, like you and me.
I would like Congress to consider a new consumer reform legislation across the board, not just in the financial industry. Companies are essentially stealing money from us and no one seems to care.
And, yes, I think moving your money to a community bank is a wonderful idea as long as you keep it under the FDIC insured amount. Personally, I have not yet switched because I appreciate some of the services of my giant evil bank.
Martin
ps: I will not vote for any local candidate that is a professional politician. They all need to be voted out of office. I have one simple standard, if you were in office in 2008, you were part of the problem, and should go. So far, Shawn Stern has my vote -- everyone else makes my stomach turn.
GS, thanks for the comments. Maybe Team Volcker will have the last laugh.
Martin
Nobody, thanks for the comments. I agree doing nothing was not an option but that's not what I state in the article. Rather, I state that we did not need to bailout AIG as the Fed did a hundred other things to assist the financial marketplace. On the counterparty payments, I think 30 cents would have been the highest I would have paid since the market value was 48 cents and the Counterparties had no other real options. 10 cents on the dollar sounds like a solid offer for Goldman Sachs and that stupid French bank.
Goldman Sachs should have received nothing.
Many things were handled badly because we had a lame duck President and people were tricked into acting quickly and they based their decisions on fear not intelligence.
Nothing, at best, we were will all tricked, at it's worst, it was intentional theft by some very clever people at Goldman Sachs who have made careers, learning how to separate people from their money. Quite frankly, I would like to know which one it was. My next essay deals with this subject. It's called "Are you now or have you ever been a Wall Street Banker?"
Martin:
The more I read your well written expositions, the more I respect and value the clarity of your thought, the precision of your focus, and the profundity of your conclusions.
Essentially, the governing political and economic elites in this county, regardless of party designation, are hunkering down in their well heeled publicly financed Wall-Street bunkers as fiscal Gotterdammerung takes place each and every day on Main Street.
The cold, hard and sordid economic facts in support of your polemic are set forth very well in a January 26, 2010 article published in TheStreet.com, entitled “Goldman, Buffett and Obama: Let Them Eat Cake” (See URL Above).
That article reports, “..According to noted economist David Rosenberg, since the multitrillion-dollar bailout of Wall Street began over a year ago, we have lost 6.2 million jobs, auto sales are down 23%, housing starts are down 30%, bank credit is down $500 billion, household net worth is down $7 trillion, and hundreds of thousands of small business have failed or are near failure. Yet Wall Street is booming. Bonuses on Wall Street are expected to set new records this year. The big Wall Street banks are making a fortune even as the rest of the country is still mired in the worst economy since the Great Depression.”
Now what did Goldman Sachs and Warren Buffett, two of Wall Street’s biggest Boss-hogg beneficiaries of feeding at the TARP public trough do recently in response to the pain and suffering that is being experienced by hundreds of thousands of small businesses in Main Street? As reported in that same article, the two of these Wall Street Walruses agreed to donate $500 Million to small businesses to promote job growth.
Now to you and me, and 99.9999% of Americans, $500 Million is fiscal heaven. But to these guys, that’s the amount that Goldman-Sachs and Berkshire Hathaway earn in a couple of days! And they earn such astronomical amounts, in great measure due to the enforced generosity of the American Taxpayers.
And the truth is that the chief enforcers were both George Herbert Walker Bush AND Barrack Hussein Obama, with the fawning complicity and assistance of all of those countless bought and paid for United States Senators and Congressmen who went along to get along with Wall Street.
Remember, even though Obama recently had the chance to change course dramatically, he didn’t hesitate for a minute to renominate Ben Bernanke, Geithner’s buddy and partner-in-crime regarding the AIG debacle, as Fed-Chair. Nor did Obama have any problem sending his White House political thugs to strong-arm 70 United States Senators to vote for Bernanke’s renomination.
By his most recent actions exercising raw Presidential power, Obama said more to me about the man’s real priorities and core values, than did any of his 400+, ghost-written, teleprompter-assisted speeches during the last year.
By their comments, Nobody and other Obama supporters simply don’t accept the cold, hard, economic facts. And as such, they are in denial that their guy is just as much beholding to Wall Street (and arguably more so, on bended knees, to Goldman Sachs, whose employees provided him with a record $1 Million in political contributions during the 2008 Presidential election campaign) as was “W.”
Worse, as GS points out, the Obama Administration’s betrayal of Main Street began on November 11, 2008, ensuring a seamless transition of public trough feeding policies for Wall Street titans, in spite of the change in Presidential Administrations. And this is the Hope and Change that America voted for in November 2008? NOT!
Martin, I’ve got a plan.. You take over the Fed, GS will tackle the SEC, and I’ll kick Geithner out of his well appointed office in the Treasury Building on Pennsylvania Avenue.
With the three of us in charge of the Holy Trinity of American Fiscal and Monetary Policy, we’ll show them how to rebuild America’s financial strength, grounded in Main Street small businesses, creating high-paying American jobs, fueled by sustainable American natural resources, one community at a time.
What do you think guys? Are you up for-it? After all, how could Main Street working class folks like the three of us possibly do any worse to the American economy than is being currently done by these Foppish Wall Street Popinjays?
NostraDemus
NostraDemus, nice post. Yes, we are facing a very big challenge here. Fixing our problems will require some sacrifice and perhaps another Wall Street crash why we wean ourselves off the financial teat that is Wall Street. However, once we fix things, America will thrive as entrepreneurs regain their natural place at the top of the food chain.
Martin
Ps: I definitely don’t want to run the Fed. How about I take DOJ for a test spin?
Martin:
Thanks for the compliment.
All right, DOJ it is. It's your choice, but remember this simple economic fact.
The Constitutional right to a jury trial by your peers doesn’t happen, at least in civil matters, if you don't have the fiscal resources to post the first day's jury fees.
And if you do take DOJ for a test spin, remember Jefferson's sage advice.. "Where there are many laws, there is little justice."
Ciao Commendatori
NostraDemus
ND,
I respect your opinions and enjoy your views. Could you be less verbose I do not have time to read your long posts. To be succinct is a gift and talent.
Love Child,
If you think ND comments are too long, you probably don't like reading my essays. In defense of Lengthy Essays everywhere -- sometimes it takes a few paragraphs to cover a subject matter. I know because of videos and texts we are becoming an ADD nation but I resist the urge and believe that America is losing the ability to critically think. I just reread the Federalist Papers -- talk about long. Democracy is not easy and certainly not something that can be accomplished in 200 words or less.
Sorry, I will get off my soapbox, I just worry that my kids are losing the ability to think in anything more than a twitter.
Martin
Love Child:
Thanks...
Great...
No...
Patience is a virtue, for which there is always time.
Brevity, is not always the soul of wit..
Ciao Amare il Bambino
NostraDemus