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 Breen
If 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.
Click on continue reading for the rest of the guest blog entry.
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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.