Category Archives: Financial Crisis

Treasury Department “Vigorously Opposed” To Fed Audit

09 Tuesday Mar 2010

Posted by in bailout, economy, Financial Crisis, Obama, Politics, Wall Street

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What is this man hiding?

“The Treasury Department is vigorously opposed to a House-passed measure that would open the Federal Reserve to an audit by the Government Accountability Office (GAO), a senior Treasury official said Monday.”

And how’s this for openness, transparency, and accountability?

“Secretary Tim Geithner, Assistant Treasury Secretary Alan Krueger and Gene Sperling, a counselor to the secretary, held a briefing Monday with new media reporters and financial bloggers during which they discussed the Fed audit and other topics. Under the briefing’s ground rules, the officials could be paraphrased but not quoted, and the paraphrase could not be connected to a specific official.”

Alan Grayson isn’t buying it:

“Rep. Grayson said he finds Treasury’s opposition to the audit troubling. “There is a growing feeling on the part of real Democrats that the president is getting bad advice from people who have sold out to Wall Street,” said Grayson.”

I’ll go one step further. The president is among those who have sold out to Wall Street, in my opinion.

Let’s Follow Iceland’s Lead

09 Tuesday Mar 2010

Posted by in bailout, Financial Crisis

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From The Agonist:

“Who cleans up the mess when ignorant, greedy bankers rack up massive debt then go broke? The people of Iceland made a strong statement Saturday. The sins of big bankers and government regulators shouldn’t fall on the citizens. By a 93% to 2% margin, they voted down a proposal requiring them to cover bad debt incurred by one of the nation’s oldest and largest banks.”

But as proof that government is the same wherever you go:

“As citizens voted, Iceland’s Prime Minister was dismissing the importance of the vote and promising to negotiate a payment scheme obligating citizen subsidies for bad debt created by Iceland’s beyond-bad bankers.”

Another Kabuki Dance on Consumer Financial Protection Agency

07 Sunday Mar 2010

Posted by in Congress, Democrats, Financial Crisis, financial regulation, lobbyists, Obama, Politics, special interests, Wall Street

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If there’s anything transparent in this administration of “openness and transparency” it’s the way the well-rehearsed and often-repeated three-act Kabuki theater plays out their alleged attempts at any major reform on any particular issue. It’s as easy to see through as a pane of glass and as easy to see coming as a freight train. Here’s how it goes, again and again:

Act I.  The president professes to want (but doesn’t actually want) real reform on a given issue. The House passes a bill containing real reform. The Senate at first seems to embrace it, but then claims ‘woe is us, we can’t pass it without Republican votes.’

Act II. The legislation is watered-down in search of bi-partisan support that the administration and the Senate leadership knows they aren’t going to get in spite of the watering-down.

Act III. What started out as “reform” becomes so weakened as to be of no real affect. Thus, the original goal of the president and his former colleagues and current accomplices in the Senate is achieved–give the appearance of doing something while actually doing nothing.

The latest example is on the creation of the Consumer Financial Protection Agency. In July of last year:

“The Obama administration…proposed legislation for a financial oversight agency designed to protect consumers and investors from unscrupulous deals…The White House sent Congress a 152-page draft bill to create the Consumer Financial Protection Agency, which it says would offer greater consumer protections for such financial products as mortgages, credit cards and loans by establishing simpler and more transparent rules and regulations.

“Consumer protection will have an independent seat at the table in our financial regulatory system,” Treasury Secretary Timothy F. Geithner said.”

At the time, Senate Banking Committee chairman Chris Dodd “called the administration’s bill a “bold and aggressive plan” to defend against a future financial crisis.”

In December the House passed a sweeping financial reform bill which contained an independent consumer protection agency.

Fast forward to Thursday of last week:

“Creating a powerful and independent consumer agency, which is strongly opposed by the financial industry and Republicans, has been the major roadblock in drafting a bill that could pass in the Senate…Dodd has been searching for months for a bipartisan compromise, a move made more urgent after a Republican, Scott Brown, won the special Massachusetts Senate election in January, giving the GOP enough votes to block any Democratic legislation. After negotiations with Sen. Richard C. Shelby (R-Ala.) reached an impasse, Dodd began working with Sen. Bob Corker (R-Tenn.).

The “compromise” reached by Dodd and Corker would take away the independence of the agency and instead making it an arm of the Federal Reserve. This despite the fact that Dodd himself said 4 months ago that Fed’s record on consumer protection was an “abysmal failure,” and more recently, “criticized the Fed’s previous inaction as a main reason for creating such an entity, noting that the central bank took 14 years before enacting rules in 2008 to protect consumers from unscrupulous mortgage lending.”

And where does the Obama administration come down? It appears to be the usual fence-straddling:

“Treasury Secretary Timothy F. Geithner and Valerie Jarrett, a senior White House advisor, met Wednesday with representatives from consumer, labor and other organizations that support a strong, stand-alone consumer agency and told them that “strengthening consumer protections remains a central objective of our financial reform efforts,” according to an administration official.

Although Geithner and Jarrett said they would not accept a bill unless it included a consumer agency with “real independence,” they did not specifically rule out housing it in the Fed or another agency.”

But appearances can be deceiving. With a little reading between the lines one can see what the administration really wants. Geithner is the former president of the New York Fed, Valerie Jarrett is a former member of the board of directors of the Chicago Fed. It seems to be too much of a coincidence that these were the two administration representatives to the negotiations. I would surmise that the president wants the agency in the Fed.

Why? It follows the script–giving the appearance of doing something–creating a consumer protection agency, while actually doing nothing–putting the agency inside the Fed, whose track record on enforcing any kind of regulation is, to use Sen. Dodd’s word, abysmal.

Mission accomplished. The peasants are appeased and the corporate masters are not angered. The campaign contributions continue to flow, and business as usual continues.

Another Financial Crisis “More Than Predictable, It’s Inevitable”

04 Thursday Mar 2010

Posted by in bailout, Congress, economy, Financial Crisis, Goldman Sachs, Obama, Politics, Wall Street

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Remember the economy and that little thing we had not too long ago called…what was it…oh yeah, the financial crisis. While Congress and the White House spend “the next few weeks” mired in the never-ending saga of health care reform, there are some potential problems which could affect us a lot sooner than 2014. If legislators have some spare time they might want to give it a glance:

“Even as many Americans still struggle to recover from the country’s worst economic downturn since the Great Depression, another crisis – one that will be even worse than the current one – is looming, according to a new report from a group of leading economists, financiers, and former federal regulators.

…Without more stringent reforms, “another crisis – a bigger crisis that weakens both our financial sector and our larger economy – is more than predictable, it is inevitable,” Johnson says in the report, commissioned by the nonpartisan Roosevelt Institute.”

In the report, the panel, which includes Rob Johnson of the United Nations Commission of Experts on Finance and bailout watchdog Elizabeth Warren, warns that financial regulatory reform measures proposed by the Obama administration and Congress must be beefed up to prevent banks from continuing to engage in high-risk investing that precipitated the near-collapse of the U.S. economy in 2008.

But in typical Congressional fashion, “beefing up” financial regulations and “stringent reforms” aren’t on the agenda:

“The proposal” [that would ban the banks receiving federally insured deposits from engaging in trading which benefits the banks and not their customers] “faces strong resistance in Congress, where lawmakers have shown little appetite for adding to the prolonged debate on overhauling financial regulations.”

The reason for Congress’ “little appetite” should come as no great surprise:

“Goldman Sachs and Morgan Stanley would probably be the Wall Street firms most affected by the ban, known informally as the Volcker Rule…”

Goldman most affected? We can’t have any of that. Chris Dodd needs a job starting in January.

Those Who Profit from Foreclosures In Charge of Anti-Foreclosure Program

27 Saturday Feb 2010

Posted by in bailout, economy, Financial Crisis, Wall Street

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From the Washington Independent (emphasis added):

“One year after the Obama administration launched its $75 billion anti-foreclosure program the housing market remains volatile, loan modifications have been scant, foreclosures are still sky-high — and more and more lawmakers are wondering why the White House hasn’t been more aggressive in tackling the crisis.”

White House? Aggressive? Surely you jest.

“Administration efforts to stabilize the troubled housing market have prioritized lenders above struggling homeowners, a number of House Democrats charged Thursday, leading to thousands of foreclosures that might otherwise have been prevented — and threatening thousands more in the months to come.

Although the Obama White House has offered billions of dollars to banks that successfully alter loans to make them more affordable, only 116,00 of those modifications have been made permanent, the Treasury Department reported The reason for the discrepancy, some Democrats contend, is clear: The decision to modify loans, under Obama’s programs, has been left in the hands of the same mortgage servicing companies that often stand to profit more from foreclosures. That conflict of interest, critics say, all but ensures that the administration’s voluntary modification program will fail.”

But why would the administration want to see the program fail?

“Despite the fact that the free-falling housing market was at the root of the global economic collapse, Washington policymakers have dedicated more attention — not to mention dollars — to the bankers of Wall Street than the homeowners of Main Street.”

Yep, that explains it. The Golden Rule: Those who have the gold buy those who make the rules.

Rubin May Testify Before Financial Crisis Commission

27 Saturday Feb 2010

Posted by in economy, Financial Crisis, Obama, Politics, Wall Street

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One of the architects of the financial meltdown, and the Godfather of the Obama economic team, might have some ‘splainin’ to do. From Bloomberg:

“Robert Rubin, the former U.S. Treasury secretary who later advised Citigroup Inc. as the bank piled up subprime-mortgage losses, may soon face his first public grilling on the 2008 financial crisis.

The Financial Crisis Inquiry Commission investigating the worst economic slump since the Great Depression, plans to ask Rubin to testify in April, said two people with knowledge of the commission’s decisions.

Ask? How about subpoena?

“Rubin’s reputation dimmed  after the U.S. bailed out New York-based Citigroup with $45 billion and AIG had to be propped up because of losses on derivatives. When Rubin was President Bill Clinton’s Treasury secretary, he fought efforts to regulate derivatives.”

His reputation dimmed? Barack Obama didn’t get that memo:

“[Obama] named Rubin to be an economic adviser during the 2008 presidential campaign, and two Treasury protégés, Lawrence Summers and Timothy Geithner are top officials in the White House. Summers, 55, is chief economic adviser and Geithner, 48, is Treasury secretary.”

And that’s not all:

“Just below Summers is Jason Furman, who worked for Rubin in the Clinton White House and was one of the first directors of Rubin’s Hamilton Project.

And as head of the powerful Office of Management and Budget, Obama named Peter Orszag, who served as the first director of Rubin’s Hamilton Project.”

…to serve alongside Furman at the NEC [Obama hired] management consultant Diana Farrell, who worked under Rubin at Goldman Sachs. In 2003, Farrell was the author of an infamous paper in which she argued that sending American jobs overseas might be “as beneficial to the U.S. as to the destination country, probably more so.”

…Over at the Commodity Futures Trading Commission, which is supposed to regulate derivatives trading, Obama appointed Gary Gensler, a former Goldman banker who worked under Rubin in the Clinton White House. Gensler had been instrumental in helping to pass the infamous Commodity Futures Modernization Act of 2000, which prevented regulation of derivative instruments like CDOs and credit-default swaps that played such a big role in cratering the economy last year.

Freddie to Stop Buying Interest Only Mortgages, Finally

27 Saturday Feb 2010

Posted by in Financial Crisis

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Karl Denninger at Market Ticker on Freddie Mac’s announcement that they are finally going to stop buying and securitizing interest only mortgages:

“Freddie (and Fannie) had no business getting involved in these toxic self-immolation devices in the first place as they are intended to do exactly one thing – asset-strip the borrower by forcing him or her to come back after the interest-only period and refinancing.

In an environment where home prices are not advancing, however, such refinancing is of course impossible, which leads immediately to foreclosure…Say thanks to the government – both past and present administrations – for conspiring with our banks to literally fleece the American Citizen for the benefit of Wall Street.”

And the fleecing will continue, thanks to the Christmas Eve blank check from the Treasury Department.

The Roaring Oughts

21 Sunday Feb 2010

Posted by in economy, Financial Crisis, Wall Street

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From Seeking Alpha:

“What a time to be an oligarch! Folks, there is no way we can have economic prosperity in this country when the top 1% has all of the money. The middle class is basically being destroyed right in front of our very eyes. Consumption economies die when the consumers have no money to consume!

…All the government has done is bail out Wall St. continuosly since 2008. My guess is the disparity of wealth in this chart would look even worse if it included 2009…Just about ALL of the steps that have been taken by the government to help fix this crisis have involved throwing more and more money to the financial elites of this country.

…Here is the reality that America has realized: If you are not part of the 1% club in this country you are nothing but a victimized pawn as the elite continue to line their pockets with our nations income…I don’t have all the answers but I know where we can start. We can start by putting an end to the bailouts of the financial elite. Washington needs to start listening to Main St. instead of top 1%’ers on Wall St. If this creates an economic crisis so be it. At least it will keep this country solvent.

…Can you say Great Depression? Remember, the only way an economy can thrive is when the majority of people involved in it are prospering. We are about to drive off the same cliff that we did in the 1920’s as the middle class is turned into a group of SERFS. Be prepared.”

“A Culture of Compulsive Sociopaths”

15 Monday Feb 2010

Posted by in Financial Crisis, Goldman Sachs, Wall Street

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Jesse’s Café Americain nails it in this commentary on Simon Johnson’s piece at Baseline Scenario about the possibility of an audit of Goldman Sachs by the European Commission over Goldman’s role in helping the Greek government hide its debt:

“…the American Wall Street banks have become dominated by a culture of compulsive sociopaths who are incapable of reforming or restraining their greed. Like all addicts, they push the envelope, emboldened by each successful scam, the weakness of regulators, and the craven support of politicians, going further and further until at long last they go one step too far, with spectacularly destructive results.

Goldman Sachs may have reached that point… the rebuke may be coming from foreign nations who become weary of the extra-legal antics of the rogue American banks.”

Johnson posits:

“..the US government, at the highest levels, has to ask a fundamental question: For how long does it wish to be intimately associated with Goldman Sachs and this kind of destabilizing action?  What is the priority here – a sustainable recovery and a viable financial system, or one particular set of investment bankers?”

Given the infestation of the Obama administration with Rubin/Goldman acolytes, I’m betting on the latter.

Washington’s Got a Secret—And They Intend to Keep It

14 Sunday Feb 2010

Posted by in Congress, economy, Financial Crisis, George W. Bush, Justice Department, Obama, Politics, Wall Street

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Gretchen Morgenson in yesterday’s New York Times on the lack of action on financial reform from our alleged representatives in the District of Columbia

“As Washington spins its wheels on financial reform, it’s becoming painfully clear that the problem of entities that are too interconnected or “too politically powerful to fail” is also too hard for our policy makers to tackle.”

What Ms. Morgenson calls Washington “spinning its wheels,” is more appropriately named the “appease the peasants” circus. That time-honored D.C. tradition of giving the appearance of doing something while actually, and intentionally, doing nothing. And it’s not that it’s “too hard to tackle,” they have a financial interest in not tackling it.

“As taxpayers, we obviously can’t rely on lawmakers to address the risks we face from the ever-expanding corporate safety net thrown under teetering behemoths. But because we are footing the bills for these rescues — and will do so again if more crises occur — don’t you agree that we should know what these implied federal guarantees will cost us?…If the government won’t reduce the size of the safety net, and it has shown no appetite for doing so, it should at least tell us the price tag.”

To the contrary, “the government”—and not just the Capitol Hill gang but those who give lip service to openness and transparency at the other end of Pennsylvania Avenue—is doing everything in its power to keep us from seeing that “price tag” as well as who received what.

“The Federal Reserve asked a U.S. appeals court to block a ruling that for the first time would force the central bank to reveal secret identities of financial firms that might have collapsed without the largest government bailout in U.S. history.

The U.S. Court of Appeals in Manhattan will decide whether the Fed must release records of the unprecedented $2 trillion U.S. loan program launched after the 2008 collapse of Lehman Brothers Holdings Inc.”

The Obama Justice Department cites the need for secrecy “confidentiality:”

“Confidentiality is essential to the success of the board’s statutory mission to maintain the health of the nation’s financial system and conduct monetary policy,” Assistant U.S. Attorney General Tony West and Fed lawyer Richard Ashton wrote in a legal brief to the appeals court.”

Never mind this:

“The lawsuit, brought under the U.S. Freedom of Information Act, came as President Barack Obama criticized the previous administration’s handling of the $700 billion Troubled Asset Relief Program passed by Congress in October 2008. Obama has said funds were spent by the administration of former President George W. Bush with little accountability or transparency.”

Hypocrisy you can believe in.