High Noon: Tim Geithner Meets The Banksters-- High Fives All The Way Around

The Bush Regime, with its last dying breathe disbursed over $300 billion to a gaggle of larcenous banksters-- with no strings and no accountability, and precious few records. It was another in a serious of outrageous heists from the most crooked regime to ever seize power in the United States. So far we know that virtually none of the money went into what Congress thought it was going for-- thawing the credit freeze that is strangling the nation's economy-- and that at least $18.4 billion went directly into the pockets of the banksters in the form of "bonuses." No one is in prison-- not one single bankster and not one single Bush Regimist. In fact, not one single penny-- let alone-- billion-- has been recovered.

But yesterday President Obama told us that "even as they [the criminal banksters] petitioned for taxpayer assistance, Wall Street firms shamefully paid out nearly $20 billion in bonuses for 2008... [Americans will not tolerate] such arrogance and greed." I'm so glad to hear that; I was afraid we would tolerate it, just as we tolerated all the crimes perpetrated by the Bush crew and their allies. So, how is our refusal to tolerate the theft going to manifest itself? I certainly hope Bush will be tried and not summarily executed (although, speaking personally and not for anyone else associated with this blog, I'd be less scrupulous about the details of what happens to Cheney). And the banksters? I assume the money they stole has already gone back into the treasury and they have been fined for their total net worths and are now learning what it is like to be on the other side of the class war, right?

Not exactly. President Obama, post-partisan that he is, is talking about how "We’ll help lower mortgage costs and extend loans to small businesses so they can create jobs," and make sure that CEOs are no longer "draining funds that should be advancing our recovery,” and that assistance to the financial system would be accompanied by “unprecedented transparency, rigorous oversight and clear accountability, so taxpayers know how their money is being spent and whether it is achieving results.” That's good. But is that before or after Bush is drawn and quartered and John Thain is offered a blindfold and last cigarette?

None of that but there is a discussion going on that may possibly someday lead to restrictions on executive pay. Maybe Obama will have Judd Gregg make the judgment calls. And then they'll give the banks another $350 billion... take that, you naughty, naught boys!

I say lock them all up in Guantanamo-- and let Marcy Kaptur decide what stress positions would be most useful towards restoring all that they have stolen.

Are The Banksters Going To Turn A Recession Into A Depression?

I'm not an economist. I try reading about the economy so that I can make rational decisions, both fiscally and politically. I read a lot-- online, in newspapers and magazines... books. I also listen to people, not to TV talking heads who know less than I do and blather for ratings but to real people who run restaurants and work in various industries and to people working for banking houses and to people being evicted from their homes by banking houses.

A couple weeks ago an old colleague told me he had sold his home for $2.6 million. The buyer was putting down 30% in cash-- $780,000. That's a nice downpayment. Probably means the buyer has got it together in the money field, right? And he does. He has a great, high paying job and is as qualified for a loan as anyone you will ever find. Go tell it to the bank that he asked to finance the mortgage. They turned him down. Banks that were luring in unsuspecting day laborers two years ago with promises that they could buy a house with 5% down and that the value would just keep increasing are now refusing to loan money to blue chip customers. (Point: banksters haven't just cut off bad credit risks in the mortgage market and hedge fund speculators and gamblers, but also legitimate would-be borrowers.)

Another friend is buying a new home for cash. It sold for over half a million dollars a couple years ago but because banks are now unwilling to finance a mortgages, my friend is getting it for less than half that. The banksters are in the way of a healthy credit market and in the way of a recovering economy. Leave them alone and let them do whatever they want, as the Republican members of Congress insist? Well, what about the $700 billion in taxpayer money that was given to them? Why was it given to them? Because we like them? Because we think they should get $100 million bonuses based on their colossal records of failure? No, we were told we couldn't give the money to distressed homeowners or to the unemployed but that if we gave it to the banksters they would start lending again, stimulate the economy, and everything would be ok. They haven't and the financial crisis has deteriorated... significantly.

As we saw last week when Texas right-wing extremist Jeb Hensarling offered an amendment to the TARP legislation meant to prevent Obama's Treasury Secretary from delegating an observer to attend meetings of the board of directors of institutions that take TARP money, 148 Republicans agreed with him that the government shouldn't interfere with the banksters. (25 Republicans, willing to put the nation's fiscal health before their party's failed dogma, crossed the aisle and voted with the Democrats. I should also point out that a pair of reactionary Democrats, Walt Minnick of Idaho and vile Blue Dog Brad Ellsworth of Indiana did what they love most-- voted with the GOP.)

Congress approved the $700 billion rescue plan with the idea that banks would help struggling borrowers and increase lending to stimulate the economy, and many lawmakers want to know how the first half of that money has been spent before approving the second half. But many banks that have received bailout money so far are reluctant to lend, worrying that if new loans go bad, they will be in worse shape if the economy deteriorates.

Indeed, as mounting losses at major banks like Citigroup [whose disgraced CEO, Charlie Prince, was given one of those nice $100 million bonuses when he was ushered out the door for wrecking the company] and Bank of America in the last week have underscored, regulators are still searching for ways to stabilize the banking system. The Obama administration could be forced early on to come up with a systemic solution, getting bad loans off balance sheets as a way to encourage banks to begin lending, which most economists say is essential to get businesses and consumers spending again.

Individually, banks that received some of the first $350 billion from the Treasury’s Troubled Asset Relief Program, or TARP, have offered few public details about how they plan to spend the money, and they are not required to disclose what they do with it. But in conversations behind closed doors with investment analysts, some bankers have been candid about their intentions.

Most of the banks that received the money are far smaller than behemoths like Citigroup or Bank of America. A review of investor presentations and conference calls by executives of some two dozen banks around the country found that few cited lending as a priority. An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future.

Speaking at the FBR Capital Markets conference in New York in December, Walter M. Pressey, president of Boston Private Wealth Management, a healthy bank with a mostly affluent clientele, said there were no immediate plans to do much with the $154 million it received from the Treasury.

“With that capital in hand, not only do we feel comfortable that we can ride out the recession,” he said, “but we also feel that we’ll be in a position to take advantage of opportunities that present themselves once this recession is sorted out.”

The bankers’ comments, while representing only a random sampling of the more than 200 financial institutions that have received TARP money so far, underscore a growing gulf between public expectations for how the $700 billion should be used and the decisions being made by many of the institutions that have taken part. The program does not dictate what banks should do with the money.

The loose requirements in the original plan have contributed to confusion over what the Treasury intended when it abruptly shelved its first proposal-- to buy up bad mortgages-- in favor of making direct investments in individual banks in return for preferred shares of stock.

The Treasury secretary, Henry M. Paulson Jr., said in October that banks should “deploy, not hoard” the money to build confidence and increase lending. He added: “We expect all participating banks to continue to strengthen their efforts to help struggling homeowners who can afford their homes avoid foreclosure.”

But a Congressional oversight panel reported on Jan. 9 that it found no evidence the bailout program had been used to prevent foreclosures, raising questions about whether the Treasury has complied with the law’s requirement that it develop a “plan that seeks to maximize assistance for homeowners.”

The report concluded that the Treasury’s top priority seemed to be to “stabilize financial markets” by simply giving healthy banks more money and letting them decide how best to use it. The report also said it was not clear how giving billions to banks “advances both the goal of financial stability and the well-being of taxpayers, including homeowners threatened by foreclosure, people losing their jobs, and families unable to pay their credit cards.”

This morning on This Week with George Stephanopoulos David Axelrod claimed that the Obama Administration plans to "send a strong message" to the banksters to get credit flowing again. "We don’t want them to sit on any taxpayer money." We haven't seen Obama stand his ground on one contentious issue yet. This would be a good one to start with, although with Republicans playing games with the confirmation of his Treasury Secretary, Tim Geithner, who knows what kinds of foul compromises at the American peoples' expense will have to be made.

Let's Hope We Don't Have To Go Back To Trading Wampum For Roadkill

When I was a kid, fast food chains weren't as pervasive as they are now. To this day, though, I've never eaten any McDonald's or Wendy's or Burger King or any of that poisonous crap. Fasting seems like a far better alternative. Another thing that was different when I was a kid: no credit cards. Actually Diners Club started around the time I was born but even when I was in college Carte Blanche and American Express were being used-- but only by rich people as far as I know. I was repulsed by the idea of credit cards the same way I was repulsed by the idea of McDonalds. I swore them both off and when I went overseas in 1969 I never even thought of getting one.

I don't recall ever seeing one overseas either-- certainly nowhere in Asia or Africa, but I wound up as the manager of a restaurant in Amsterdam for several years and no one ever offered to pay with one there either. When I returned to the U.S. in the second half of the 70s, people were using them here widely. I resisted but it was hopeless. The system mandated it. It became more and more difficult to go about one's daily business without one. I gave in-- around the same time I swore off cell phones.

One thing I have stuck to, though. I've never paid a dime in credit card interest. I get my bill and I pay it. Much better that way. But the system has definitely been rigged so that its difficult to function as an adult in America without a credit card. After a job, it's the #2 source of consumer liquidity. And, just as jobs are becoming scarce, the credit card companies-- those folks that send you the pre-approvals in the mail every week-- have decided to cut back a bit by $2 trillion.

You know all those billions of taxpayer-- i.e, our-- dollars the Bush Regime has been shelling out to banks to keep the system liquid? Apparently the no strings approach isn't something you can use with banksters. Speedy trials and firing squads are more effective. Bank of America, CitiBank, and JPMorganChase have scooped up half the credit card business in America and, due to risk aversion, they are all talking about cutting back on cards.

Closing millions of accounts, cutting credit lines and raising interest rates are just some of the moves credit card issuers are using to try to inoculate themselves from a tsunami of expected consumer defaults.

A consolidated U.S. lending market that is pulling back on credit is also posing a risk to the overall consumer liquidity.

In other words, they're destroying the economy. Make the trials even speedier. Meredith Whitney, managing director of Oppenheimer & Co, wrote an Op-Ed in yesterday's Financial Times warning of an economic train wreck and the dire consequences of this latest outrage.

For the sake of John McCain, George Bush, Saxby Chambliss and no one else, the National Bureau of Economic Research announced that we've been in a recession for exactly one year. (Who didn't know that?) Yet Ms. Whitney says she's more bearish today than she's been for the past 18 months.

I estimate that the mortgage market will shrink for the first time in US history and that the credit card market will be 18 months behind it. While just over 70 per cent of US households have access to credit cards, 90 per cent of these people use credit cards as a cash-flow management vehicle, or revolve payments at least once a year. While the credit card market is small relative to the mortgage market, it has grown to play a key role in consumer liquidity. Declining liquidity here will have disastrous effects on consumer spending and the economy. My primary concern is preserving liquidity to consumers, who command more than two-thirds of gross domestic product.

There is no doubt that time will be the greatest healer, but there is a strong argument for putting the financial system through a methadone-clinic-style rehabilitation as opposed to the “cold sweats” rehab that we face. The US government appears to feel the same, which is why various versions of direct government lending and quasi- as well as real bail-outs have been announced. Certainly, credit was extended to unworthy borrowers, but the baby is now being thrown out with the bath water. I expect more broad-based credit contractions but, specifically, more than $2,000bn in credit lines to be cut in reaction to risk aversion, constrained capital and regulatory change.

Here are some easily adoptable changes that would make a difference.

First, re-regionalise lending. Since the early 1990s, key bank products, mortgages and credit card lending were rapidly consolidated nationally. Banking went from “knowing your customer” or local lending, to relying on what have proven to be unreliable FICO credit scores and centralised underwriting. The government should now motivate local lenders (many of which have clean balance sheets) to re-widen their product offering to include credit cards and encourage the mega banks to provide servicing and processing facilities to banks that sold off these capabilities years ago.

Second, expand the Federal Deposit Insurance Corporation’s guarantee for bank debt. Banks need to know they can access reasonably priced credit for an extended period to continue to extend new credit lines. Any semi-conscious bank management team knows that capital and liquidity are precious and therefore is hoarding both.

Third, delay the introduction of accounting rule FAS 140 until 2011 or 2012. These moves to bring off-balance-sheet assets back on balance sheet for the sake of transparency are a mirage. The primary assets that will come back on to balance sheets are credit card loans. Frankly, there is more transparency in off-balance-sheet master trust data than in on-balance-sheet accrual accounting. Banks cannot afford it now and it will further constrain credit.

Fourth, amend the proposal on Unfair and Deceptive Lending Practices that is set to be adopted in 2010. The proposal includes one major change that will lead to a severe unintended consequence – pulling credit from consumers. Restricting lenders’ ability to reprice an unsecured loan will cause them to stop lending or to lend less. This change could cut over $2,000bn in unused credit card lines, or over 40 per cent of unused credit lines. With so many Americans relying on their credit cards as a major source of liquidity, it would be equivalent to a major pay cut.

Krugman is also calling for massive intervention by the government-- "a very large fiscal expansion to keep the economy from going into free fall."

Fiscal expansion will be even better for America’s future if a large part of the expansion takes the form of public investment-- of building roads, repairing bridges and developing new technologies, all of which make the nation richer in the long run.

...[W]e have a fundamental shortfall in private spending: consumers are rediscovering the virtues of saving at the same moment that businesses, burned by past excesses and hamstrung by the troubles of the financial system, are cutting back on investment. That gap will eventually close, but until it does, government spending must take up the slack. Otherwise, private investment, and the economy as a whole, will plunge even more.

The bottom line, then, is that people who think that fiscal expansion today is bad for future generations have got it exactly wrong. The best course of action, both for today’s workers and for their children, is to do whatever it takes to get this economy on the road to recovery.

I have a good feeling that Obama has assembled a decent economic team and that they are going to make an honest effort to right the ship-- and that they'll do it boldly and competently. They may have a hard time persuading reactionaries from obstructing progress but I'm getting the feeling that most Americans know that it's our only chance. Otherwise Dow plunges of 680 points are going to look like the good old days not too far down the road.

UPDATE: ALL THIS FIRING SQUAD TALK...

Whenever we advocate speedy trials and blindfolds and last cigarettes for economic criminals like the banksters, please keep in mind that we certainly want even speedier trials for the political hacks they buy off and who, instead of tending to the people's interests, tend to the special interests. Take the entire Bush Regime, for example.

The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying-- along with assurances from banks that the troubled mortgages were OK-- regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

Does "aggressive lobbying" include bribes? And does "bowing" mean stuff wads of cash up your ass?