Blog on the Run: Reloaded

Thursday, July 26, 2012 8:29 pm

Sorry, but, yes, the 2008 bank bailouts really were as much of a reaming of the American taxpayer as we thought at the time

Another crappy “both-sides-do-it” column: Betsey Stevenson and Justin Wolfers write at Bloomberg that our current political debate on the economy is a “sham” because leading economists unanimously agree that  the bailouts helped the unemployment situation. But economist Dean Baker provides the missing context: While that claim might be technically true, the bailouts could have been structured far more constructively than they were, both to address then-current problems and to help prevent the recurrence of similar problems:

The Wall Street banks were on life support in the fall of 2008. Without trillions of dollars of government loans and guarantees (much more came from the Fed than the TARP money that went through the Treasury), they would be dead, deceased, pushing up daisies, out of business. The boys and girls getting those huge paychecks on Wall Street were at Uncle Sam’s doorstep pleading for help. There was no one else to save them from destitution.

In this context there were three main choices. One was to drag out Mitt Romney and give them a lecture about the free market and tell them the government is not about giving people stuff. In this case the banks go under leading to a full-fledged financial melt-down. In this story, the economy certainly takes a bigger immediate hit, but the advantage is that we have a Wall Street free world. Goldman Sachs, Citigroup, Morgan Stanley, J.P. Morgan and the rest would be history. They are in receivership, waiting to broken up and sold off. This parasitic sector that has led to so much waste, corruption and inequality is no longer a drag on the economy. Consider this short-term pain for long-term gain. (Just kidding about the Romney part, he supported the bailout.)

The second choice is hand over the money, which is the route we took. Oh yeah, Congress did put conditions on the money, but we know that was just for show. One of the most disgusting things I’ve seen in my years in Washington were the excellent stories on how executive compensation was treated in the TARP that the Washington Post and Wall Street Journal ran after the TARP passed.

Both articles featured comments from compensation expert Graeff Crystal who explained that the government could have changed compensation patterns on Wall Street forever (the Wall Street boys needed the money), but Congress instead took a pass. It would have been great if Crystal’s views were part of the public debate before the bill was passed.

This brings up option number 3, hand the money over but with real conditions. Congress could have said that banks that got TARP money, funds through the Fed’s special lending facilities, or benefited from the various Treasury and FDIC insurance commitments had to:

a) strictly limit all pay in all forms for the next five years;

b) set up a clear, legally enforceable plan for writing down underwater mortgages on their books;

c) agree to a breakup schedule that would get them below “too big to fail” size by a set date.

To my mind, option #3 was clearly the best route since it would fix the financial industry and avoid the crash that would result from going cold turkey in option #1. But let’s say that the choice is just the full crash in option #1 or the handout in option #2. In order to seriously decide between these we need some basis for assessing the size of the downturn. Saying that the short-term impact would have been worse in option #2 doesn’t tell us anything about the proper policy choice. We pay short-term costs for long-term benefits all the time. We need the terms of the trade-off.

In ths respect, the commonly claimed “second Great Depression”scenario is, to use a technical economic term, “crap.”  The first Great Depression, by which I mean a decade of double-digit unemployment was not locked in stone by the mistakes made at its onset. There was nothing that would have prevented the government from having the sort of massive stimulus spending that eventually got us back to full employment (a.k.a. World War II) in 1931 instead of 1941 and without the war. The fact that we remained in a depression for more than a decade was due to inadequate policy response.

In this respect, to claim that if we let the banks collapse we would have been destined to suffer a decade of double digit unemployment is absurd. That would only be the result if we continued to have bad policy, not just in 2008, but in 2010, in 2012, right through to 2018.

The serious question is how bad could we reasonably expect the downturn to have been if we had gone the cold turkey route. The place to look for insight on this question is Argentina, which went the financial collapse route in December of 2001. This was the real deal. Banks shut, no access to ATMs, no one knowing when they could get their money out of their bank, if they ever could.

This collapse led to a plunge in GDP for three months, followed by three months in which the economy stabilized and then six years of robust growth. It took the country a year and a half to make up the output lost following the crisis.

While there is no guarantee that the Bernanke-Geithner team would be as competent as Argentina’s crew [indeed, subsequent events have shown that they are not — Lex], if we assume for the moment they are, then the relevant question would be if it is worth this sort of downturn to clean up the financial sector once and for all. I’m inclined to say yes, but I certainly could understand that others may view the situation differently.

Anyhow, this is the debate that we should have had the time and at least be acknowledging in retrospect.

We had the bastards down in the fall of 2008, and we didn’t hit them with the chair. A century from now that failure will be considered the key turning point in the transition of the U.S. from a democratic republic to a full-on oligarchy.

Sunday, June 20, 2010 11:43 pm

Foreclosing on foreclosure

Filed under: Evil,I want my money back. — Lex @ 11:43 pm
Tags: , ,

One obvious potential problem with the “securitization” — the packaging of mortages and selling them as financial instruments — is: Who really owns the mortgaged property?

Oddly enough, a lot of judges want to know and are not entertaining kindly attempts by banks to fudge their answers:

The backlash is intensifying against banks and mortgage servicers that try to foreclose on homes without all their ducks in a row.

Because the notes were often sold and resold during the boom years, many financial companies lost track of the documents. Now, legal officials are accusing companies of forging the documents needed to reclaim the properties.

On Monday, the Florida Attorney General’s Office said it was investigating the use of “bogus assignment” documents by Lender Processing Services Inc. and its former parent, Fidelity National Financial Inc. And last week a state judge in Florida ordered a hearing to determine whether M&T Bank Corp. should be charged with fraud after it changed the assignment of a mortgage note for one borrower three separate times.

“Mortgage assignments are being created out of whole cloth just for the purposes of showing a transfer from one entity to another,” said James Kowalski Jr., an attorney in Jacksonville, Fla., who represents the borrower in the M&T case.

Now, I should point out that I am not arguing that lien holders shouldn’t be paid what they’re owed. But I’ll argue all day that if property “owners” have to have their paperwork in a row, so should lien holders.

Cynthia Kouril of Firedoglake comments:

You know, if banks had just dealt honestly with people about modifying the mortgages to reset the principle [sic] to reflect the post bubble value of those houses, and the post bailout interest rate, a whole slew of home owners could have been kept in their homes, with a payment they could afford. By doing this, using the money that the TAXPAYERS gave them for this very purpose –Hello, remember TARP?—housing prices would have stabilized, neighborhoods would not be in freefall and bankers, and the investors in those mortgage backed securities, would be enjoying a steady stream of income for years to come. The pittance they will get for the house at foreclosure auction is a tiny fraction of the amount they would have collected over the life of those modified mortgages.

That’s the point nobody wants to talk about now: TARP was intended to help banks extend credit, keep home owners in their homes and write down the values of the bubble-priced assets on their books without having to go bankrupt. But, of course, the money came with no regulatory or oversight strings attached, as federal money always seems to do when it’s going to corporations, and so the money went elsewhere, like proprietary trading and executive bonuses.

Moreover, when the emphasis changed from originating profitable mortages to originating mortages, period, collecting the origination fees and then selling them just as fast as possible, any idiot could have told you what was going to happen:

What really gets me, is the audacity of the greed. The entire system is set up to generate fees, rather than income from the repayment of the mortgages. So, not only is the homeowner suffering, but the municipalities and pension funds that foolishly invested in those mortgage backed securities are losing, too, because the trustees and others who owe them a fiduciary duty are ripping them off for more servicing fees and foreclosure costs instead of taking proper steps to secure an ongoing, though somewhat diminished, income stream.

Those of you who are fond of Big Questions might like to ponder this one: Why does no one take his fiduciary responsibilities seriously anymore? And this one: Why are there no serious real-life consequences for breach of fiduciary responsibility?

Wednesday, June 16, 2010 10:05 pm

What do you call the indictment of one mortgage-company CEO on charges of conspiring to steal half a billion in TARP funds?

I hope that in time we can look back and call it a good start.

Tuesday, January 12, 2010 8:49 pm

Odds and ends for 1/12

War crime: An independent Dutch commission finds that the 2003 invasion of Iraq, and therefore the Netherlands’ support of same, “had no sound mandate in international law.” Somewhere, Dick Cheney’s shriveled testicles shrivel a little more.

The SEC mans up. Oops, no, wait, not really: The Securities & Exchange Commission asks the court for permission to file additional charges against Bank of America for failing to disclose Merrill Lynch losses to BofA shareholders before a takeover vote. And yet it also says no individual(s) can be held legally responsible for the royal hosing those shareholders received. All the deceit and fraud somehow just … happened, I guess. Yet one more reason why corporations, legally speaking, shouldn’t be people.

Pecora for the new millennium: A list of questions the banksters should be asked tomorrow by the Financial Crisis Inquiry Commission (also called the “New Pecora Commission,” after the panel that looked into the causes of the Depression), but almost certainly won’t be.

New Jersey legislature approves medical marijuana, and the gov says he’ll sign the bill within the week. The effects on “Jersey Shore” remain to be seen.

And speaking of “Jersey Shore,” watch out, “Jersey Shore,” there’s a new drinking game in town: Fox News hires Sarah Palin.

Anything that annoys the Financial Services Roundtable is probably a good idea: Obama considers taxing banks that got TARP money. It should happen … which means I’ll believe it when I see it.

“I am not a hero.”: The hell she says. Miep Gies, the Dutch woman who helped hide Anne Frank’s family and other Jews from the Nazis and later preserved Anne’s diary, is dead at 100.

He was not necessarily a hero, but he was one bad dude: Old-time Coney Island strongman Joe Rollino, who celebrated his 103rd birthday by bending a quarter with his teeth, is dead at 104. But only because he got hit by a minivan.

To see, or not to see: The Supreme Court supposedly will decide tomorrow whether to allow 1) closed-circuit broadcasting of the trial of Perry v. Schwarzenegger (the gay-marriage lawsuit) in other courthouses in California and/or 2) allow video to be posted to YouTube. Here’s some factual and legal background (more here); both writers think the Supremes, who don’t want their own proceedings broadcast, see this as a slippery slope. I bet they’re right.

Quote of the day, from commenter mjvpi at Firedoglake: “Health care reform is giving me Tourette’s syndrome.”

Another quote of the day, from washunate at The Seminal: “… the past three decades have witnessed the slow and steady transfer of the wealth generated by labor’s productivity into the hands of a few select families of already great wealth. If anything can capture an image of the consequences of the Reagan-Bush era, it’s gotta be 225 million Americans in 1979 buying more vehicles than 308 million Americans in 2009.” Yup. In absolute numbers, almost 33% more. Heckuva job, Georgie.

Thursday, December 3, 2009 9:15 pm

Odds and ends for 12/3

With friends like these: Iraqi lawyer helps U.S., gets tortured by Iraqis for his trouble and now is suing U.S. for $200MM for trying to murder him.

With friends like these, cont.: Someone else unhappy with U.S. conduct in Iraq — the head of Blackwater (now Xe), Erik Prince.

Women’s rights: I wouldn’t say I expect to enjoy reading this book, but I’m looking forward to it. Nick Kristoff can be an insufferable ass sometimes, but on this issue he is doing God’s work and has been for a long time. (h/t: Janice)

Reality check: Who are we, Zbigniew Brzezinski asks, to criticize Afghanistan about government corruption? “Americans, of course, hate hypocrisy,” the LA Times’ Andrew Malcolm observes, “by everyone else.”

Elizabeth Warren for president: “America today has plenty of rich and super-rich. But it has far more families who did all the right things, but who still have no real security.”

The Republicans have a plan for health-care reform: Prevent it by any means necessary.

They also have a plan for fixing the deficit: killing Social Security and Medicare. Actually, that’s backward. It’s not that they want to kill SocSec/Medicare to fix the deficit. It’s that they’re making a big deal about fixing the deficit (now; not so much when it was Bush’s deficit) because that’s a plausible excuse for what they really want to do, which is pulling the New Deal and Great Society up out of our culture by the roots. Unfortunately, they lack the intellectual integrity to say so forthrightly. When they did say so forthrightly, about Social Security, in 2005, they got their heads handed to them.

Call this bluff: The banksters at Royal Bank of Scotland, which got the world’s largest bailout, say they’ll quit if they don’t get their bonuses. Don’t let the door hit you in the bum as you leave, tools.

Dylan Ratigan FTW: Reject Bernanke. He started the damn fire.

Shorter Jonathan Weil: FDIC, man up. Banks, pay up. Amen.

Jason Linkins points out a bit of a discrepancy in criticism of the Afghanistan withdrawal date: Critics suggest that setting a start date for withdrawals will just embolden terrorists to wait until we leave. This ignores the fact that even while we’ve been threatening “to go hard, forever,” the average yearly number of global jihadi terror attacks  has increased 607% since we invaded Iraq. Oops.

Relatedly: George Will takes a couple of cheap shots at Obama, and embraces the flawed slippery-slope argument in the item above, and mistakenly believes that Afghanistan is winnable anymore, but he also believes the right thing for most of the right reasons: This will not end well.

To all the first-time voters who supported Obama because you thought he’d get us out of George Bush’s ill-conceived wars: Here’s to the loss of your political virginity.

Lou Dobbs’ presidential aspirations = FAIL: Anti-immigrant group pulls support. Bwa!

Friday, November 13, 2009 8:49 pm

Odds and ends, Nov. 13

  • Typing Under Ladders: Today’s Friday the 13th. I have exactly no interesting Friday-the-13th stories to tell. To the extent that I can remember the dates at all, two of the unluckiest days of my life, one involving romantic failure and one involving serious physical injury, occurred on the 4th of a month.
  • Home Game: Khalid Sheikh Muhammad and four other accused planners of the 9/11 terror attacks will be tried in civilian federal court in New York, just blocks from Ground Zero. The wingnuts are soiling their drawers at the thought of terrorists (accused, but still) on U.S. soil. Me? I think the U.S. court system can handle the case and that the FBI and NYPD are more than up to handling the security. This ain’t, in other words, an issue over which I’m going to lose any sleep. Nor should you.
  • Bloviation By Other Means: I watched CNN’s Lou Dobbs only enough to determine that he was a pompous, phony ass upon whom none of my time should be wasted, and so I don’t care that he left CNN except that I think he’s planning to run for president. Or for governor of Alaska. Whichever.
  • Nice Guys: Married women who learn they have a serious illness are seven times as likely as married men to end up separated or divorced.
  • Back from the Dead: Under the guise of deficit reduction, the rich are coming after your Social Security again. Don’t let them get away with it.
  • Undessicated after all: You remember when we rammed our manly missile into the moon a few weeks ago? Turns out the moon was wet. All innuendo aside, while this doesn’t throw everything we thought we knew about the moon up for grabs, it changes quite a lot, including the consensus on whether there ever might have been life on the moon. Cool.
  • Double Standard: If pro-choice women are considered immoral for threatening to oppose any health-care reform that bans spending federal money on abortion, what does that make the Roman Catholic Church?
  • Delay, Deny & Hope That I Die: Why would Senate Republicans delay extending unemployment benefits for weeks and weeks, and then finally vote unanimously in favor of them? Because procedural rules made delay the functional equivalent of denial, so they could screw people and still look good as far as the voting record went. Bastards.
  • Listening to the People Who Were Right: Ten years ago, Sen. Byron Dorgan, D-N.D., correctly told his colleagues that repealing the Glass-Steagall Act was a bad idea, one that within 10 years we would come to regret. So why is it that Byron Dorgan isn’t running all things financial in Washington today? Did you not just hear what I said? He correctly told his colleagues that repealing Glass-Steagall was a bad idea.
  • Cyber Pearl Harbor has already happened. Twice. Both times on George W. Bush’s watch, although so far as anyone can tell, it doesn’t look like Obama has learned anything from his predecessor’s mistakes.
  • I Believe the Technical Term for This Is “Fraud”: One reason Chrysler got a lot of taxpayer money was that it was going to produce greener cars. Only now that it has actually gotten the money, guess what it’s not doing?
  • Another Sin to Lay at the Feet (Tentacles?) of the Vampire Squid: Oh, nothing much, really. Just an oil scam. A $2.5 trillion oil scam.
  • Relatedly, and finally, Why Goldman Sachs Should be Broken Up, by, interestingly enough, Goldman Sachs.

Friday, July 3, 2009 11:54 am

Good thing I’m a Bacardi man

Filed under: You're doing WHAT with my money?? — Lex @ 11:54 am
Tags: ,

The British company that makes Captain Morgan rum got $2.7 billion from the Troubled Assets Relief Program. To move.

(h/t: Zero Hedge)

Tuesday, February 10, 2009 7:30 pm

Your dollars mismanaged? Drop a dime.

The Special Inspector General of the $700 billion program aimed at keeping banks solvent has set up a whistleblower line for anyone who knows of misuse of money by banks receiving taxpayer dollars under the Troubled Assets Relief Program (TARP).

About time someone was looking out for my money in that deal. I just wish the government were doing more in that regard. Something like, “You don’t want to tell anyone how you’re using the money? Then we’ll just be taking it back, thankyouverymuch.”

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