If Obama Wants To Get Serious About Rescuing The Country Nationalizing Failed Banks Looks Like The ONLY Option

A huge error that must be corrected, quickly

Last week we wrote quite a bit about Alan Grayson's Pay for Performance Act of 2009, a law that means to end the Republican "no strings attached" bailouts of big corporations. Under Grayson's bill, the Treasure Department has oversight of compensation for companies taking taxpayer money so that there will be no more instance like $3.5 billion (of $10 billion in bailout money) going directly into the pockets of the banksters (in the form of unjustifiable "bonuses"), as happened under Bush's bailout "plan." Grayson's bill was supported by every single Democrat, including the Blue Dogs, in the House Financial Services Committee-- and two Republicans broke with the obstructionists and voted for it as well.

With Republicans screaming bloody murder-- and calling for their smelling salts-- Grayson reminded the American people that "This bill will show which Republicans are so much on the take from the financial services industry that they're willing to actually bless compensation that has no bearing on performance and is excessive and unreasonable. We'll find out who are the people who understand that the public's money needs to be protected, and who are the people who simply want to suck up to their patrons on Wall Street."

Grayson's bill passed by a wide margin, 247-171, 10 Republicans abandoning their party's corporate maters to vote "yes" and, shamefully, 8 Democrats voting with the GOP, mostly reactionaries who habitually vote with Republicans on core issues-- the Walt Minnicks (Blue Dog-ID) and Harry Mitchells (Blue Dog-AZ).

But before Grayson's vote came to the floor on April 1, another Blue Dog corporate whore, Melissa Bean (IL), offered an amendment meant to water down the bill for her Big Business campaign contributors. Her amendment, which was opposed by most Grayson and by the vast majority of Democrats (190)-- but, naturally enough, embraced by Republicans-- is meant "to allow institutions that enter into a payment schedule with Treasury on terms set by Treasury to no longer be subject to the bonus and compensation restrictions created by the Act." It passed 228-198.

Even with the public so angry about the banksters blatantly ripping off the public and holding the economy for ransom until their self-entitled greed is sated, virtually all Republicans plus reactionary Democrats like Bean and her ilk, are still counting on everyone forgetting or just getting over it by the 2010 midterms. Bean doesn't represent, in the true sense of the word, the working families of Lake and McHenry counties. She represents the special interests who have lavished immense sums of money on her. The sector which would be most salubriously effected by her sneaky amendment-- finance/insurance.real estate-- has funneled $1,725,806 into her political career, far more that the average House member. And they know they can always count on her to sell out her constituents and lead like-minded Democrats across the aisle to vote with Republican shills serving the same corporate masters.

Yesterday at Salon Glenn Greenwald pointed out why we can't even turn to the executive branch for relief from Wall Street and their minions in Congress. Obama's two top economic advisors, Tim Geithner and Larry Summers are as in the pockets of Wall Street as you;d expect any Republican bucket of slime to be.

Lawrence H. Summers, one of President Obama's top economic advisers, collected roughly $5.2 million in compensation from hedge fund D.E. Shaw over the past year and was paid more than $2.7 million in speaking fees by several troubled Wall Street firms and other organizations....

Financial institutions including JP Morgan Chase, Citigroup, Goldman Sachs, Lehman Brothers and Merrill Lynch paid Summers for speaking appearances in 2008. Fees ranged from $45,000 for a Nov. 12 Merrill Lynch appearance to $135,000 for an April 16 visit to Goldman Sachs, according to his disclosure form.

Glenn accuses Summers of taking "advance bribes" from Goldman Sachs and Merrill Lynch and it would be impossible for anyone to look at the evidence and interpret it any other way. "And," Glenn reminds us, "it's paying off in spades."

People like Rubin, Summers and Gensler shuffle back and forth from the public to the private sector and back again, repeatedly switching places with their GOP counterparts in this endless public/private sector looting.  When in government, they ensure that the laws and regulations are written to redound directly to the benefit of a handful of Wall St. firms, literally abolishing all safeguards and allowing them to pillage and steal.  Then, when out of government, they return to those very firms and collect millions upon millions of dollars, profits made possible by the laws and regulations they implemented when in government.  Then, when their party returns to power, they return back to government, where they continue to use their influence to ensure that the oligarchical circle that rewards them so massively is protected and advanced.  This corruption is so tawdry and transparent-- and it has fueled and continues to fuel a fraud so enormous and destructive as to be unprecedented in both size and audacity-- that it is mystifying that it is not provoking more mass public rage.

And it wasn't just Glenn writing about this yesterday. The Washington Post didn't miss very clear signals from the Obama Administration that they plan to protect the banksters-- not just from angry mobs with pitchforks, but from any attempt by Congress to recoup the stolen money. They're giving in to demands from the banksters that they won't cooperate with Obama's rescue package, not even if it plunges the country into a decade of Depression, unless they get all the money they decide they are entitled to. And Openwheel in Michigan makes the point that the auto industry bondholders and investors won't budge an inch until they get theirs-- regardless of the fact that the government already funneled billions of taxpayer dollars their way-- the no strings attached kind. Apparently they believe that money is their due and not something meant to help rescue the nation.

Nationalization should have been the answer months ago. It will save us a lot of money and misery if Obama makes the move tomorrow morning. The Sunday Guardian has some shocking news-- and it makes more sense than most of what we've been hearing from Obama's economic team. Elizabeth Warren works for Congress, not for the Obama banksters, and as the TARP watchdog she's about to demand the removal of the nation's top failed banksters!

Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program (Tarp), is also set to call for shareholders in those institutions to be "wiped out". "It is crucial for these things to happen," she said. "Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade." She declined to give more detail but confirmed that she would refer to insurance group AIG, which has received $173bn in bailout money, and banking giant Citigroup, which has had $45bn in funds and more than $316bn of loan guarantees.

Warren also believes there are "dangers inherent" in the approach taken by treasury secretary Tim Geithner, who she says has offered "open-ended subsidies" to some of the world's biggest financial institutions without adequately weighing potential pitfalls. "We want to ensure that the treasury gives the public an alternative approach," she said, adding that she was worried that banks would not recover while they were being fed subsidies. "When are they going to say, enough?" she said.

Does Obama Have The Guts To Nationalize The Failed Banks?

The average American CEO makes hundreds of times more than what the average worker his company employs makes-- if we can even be sure what the crafty CEO really makes. The average big company CEO in the U.S. also makes far more than the average comparable CEO in any other industrialized country.

Nobody beats the U.S. when it comes to the difference in pay between CEOs and the average worker. In 2000, on average, CEOs at 365 of the largest publicly traded U.S. companies earned $13.1 million, or 531 times what the typical hourly employee took home. The corresponding ratio in 1980 was only 42, and in 1990 it was 85.  As one source has put it, "in 2000 a CEO earned more in one workday (there are 260 in a year) than what the average worker earned in 52 weeks. In 1965, by contrast, it took a CEO two weeks to earn a worker's annual pay". US CEOs' pay rose 313 percent from 1990 to 2003, an advocacy group UFE said. By contrast, the Standard & Poor's 500 stock index rose 242 percent and corporate profits gained 128 percent.

The closest countries to the American model are

Brazil- 57 times
Venezuela 54 times
South Africa 51 times
Argentina 48 times
Malaysia 47 times
Mexico 45 times

Countries we like to think of ourselves as having more in common with have vastly different pay gays between workers and CEOs:

Britain 25 times
Australia 22 times
Netherlands 22 times
Canada 21 times
Belgium 19 times
Italy 19 times
Spain 18 times
New Zealand 16 times
France 16 times
Sweden 14 times
Germany 11 times
Switzerland 11 times
Japan 10 times

Typically, CEO pay in other industrialized countries is only about one-third of what American CEOs make and these out-sized compensation packages are utterly unrelated to performance and in some cases are inversely related to performance-- the worse a company has done, the more money the CEO has gotten for himself. In 2006, that average American CEO made in a day more than a worker makes in a year. A hallmark of the Bush Regime has been that the old truism-- the rich get rich and the poor get poorer-- was supercharged

So now President Obama is in an awkward situation. The avaricious banksters and CEOs who have driven the American economy off the cliff need hundreds of billions of dollars to make up for the systematic looting of the companies they have overseen. He can't tell them to take a hike because if the companies all go bankrupt, they'll take the U.S. economy with them. Bush already gave them over $350 billion dollars in the first installment of TARP-- no accountability and no strings attached. Much of it has been stolen-- in the form of discretionary bonuses and golden parachutes and... well, letting the good times roll. Now they're back for another $350 billion.

Obama has said that anyone company that takes TARP money going forward-- though not the ones who already did-- have to limit individual executive compensation to $500,000 a year. Not a prison sentence not even a requirement that they be forced to give back what they've already stolen-- the punishment is half a million dollars a year until the TARP money is paid back. The Republicans, of course, are screaming bloody murder. And so are the Blue Dogs and other anti-working families pseudo- "Democrats." But aside from the politicians they own, their media outlets are also making the case that a self-respecting CEO can't be expected to survive on a measly half mil a year. This week's Economist dismisses Obama's move as "political theatre" and points out that when this has been tried in the past, CEOs have cheated and gotten around the rules with ease. The Economist warns that some will leave (for Brazil?) and others will stop working so hard.

Capping the non-equity-based remuneration of executives in companies receiving “exceptional assistance” at $500,000 a year and banning “golden parachutes” for failed executives is likely to strike most Americans as fair, or even generous, given that Mr Obama himself earns a mere $400,000 and the rules will apply only to new bail-outs. Indeed, after the outrageous payment of billions of dollars in bonuses by Wall Street firms that had survived only because many more billions had been injected into them by the government, the executives should probably be grateful for getting off so lightly. Moreover, executives will be allowed grants of restricted stock (which they cannot sell until the taxpayer is repaid), so they may yet end up making a fortune.

...Will Mr Obama’s message to bosses that they have “got responsibilities not to live high on the hog” lead to restraint in executive pay more broadly? Ira Kay of Watson Wyatt, a pay consultant, thinks it might, because rising pay on Wall Street in recent years led to higher pay elsewhere—a trend that may now operate in reverse.

In the long run, the more significant change may be Mr Obama’s decision to give American shareholders a vote on executive compensation, through a “say on pay” resolution. A vote is certainly more sensible than a crude government limit—especially if it is extended to all public companies, not just those bailed out by Uncle Sam. A similar reform is reckoned to have made at least some difference in Britain, and not before time.

A few days ago BusinessWeek published a pro and con look at the question Should The U.S. Nationalize the Broken Banks? Pro won.
Friday Nobel Prize-winning economist Joseph Stiglitz (watch the video) came to the same conclusion: Nationalized Banks Are The Only Answer. "The banks," he says, "are in very bad shape. The U.S. government has poured in hundreds of billions of dollars to very little effect. It is very clear that the banks have failed. American citizens have become majority owners in a very large number of the major banks. But they have no control. Any system where there is a separation of ownership and control is a recipe for disaster. Nationalization is the only answer. These banks are effectively bankrupt."

Interviewed at Davos last week, Nassim Nicholas Taleb, author of the best-selling finance book The Black Swan and New York University Professor Nouriel Roubini, were in complete agreement. Taleb: "You cannot trust the banks in taking risks. We have a very strange situation in which it's the worst of capitalism and socialism, a situation in which profits were privatized and losses were socialized. We taxpayers have the worst... "We should not trust these bankers; look at their track record. They know we're going to bail them out. They hold us as hostages [and] the only way to stop the process is for the government to own those banks, tell them what to do."

The American public isn't even aware that this debate is going on. Instead they get simplistic, politically-charged drivel from the hacks we elect to office and from the sad excuse for popular media. Just watch this clueless-- but well-coifed-- CBS talking head try to get Steve Forbes to warn Americans that Obama is a socialist:



So back to the question up top about President Obama's intestinal fortitude. I'm afraid not. And I gather from what Paul Krugman wrote today is his column, What The Centrists Have Wrought, he's not counting on Obama knocking some sense into any Republican heads any time soon either.

[T]o appease the centrists, a plan that was already too small and too focused on ineffective tax cuts has been made significantly smaller, and even more focused on tax cuts.

According to the CBO’s estimates, we’re facing an output shortfall of almost 14% of GDP over the next two years, or around $2 trillion. Others, such as Goldman Sachs, are even more pessimistic. So the original $800 billion plan was too small, especially because a substantial share consisted of tax cuts that probably would have added little to demand. The plan should have been at least 50% larger.

Now the centrists have shaved off $86 billion in spending-- much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast-- because it prevents spending cuts rather than having to start up new projects-- and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.

He ends with an even more dire prediction: Obama won't be able to come back for what is needed to make this idea work after this version fails. "This," he writes, "is really, really bad." And, it could get even worse if Obama doesn't take seriously the building populist disgust with the Wall Street-Beltway Axis of Evil real Americans have had just about enough of.

Nationalize The Banks And Hang The Banksters

Carmen & John Thain are laughing all the way to the bank... AT YOU!

I heard an NPR host start a show today by saying "No one wants to see the banks nationalized..." We don't? No one? What do we want? To be pillaged and plundered until we're starving and slavery starts looking good? Do we want to just pay our money directly to the John A. Thains of the world, and other self-entitled criminal banksters? Thain ran Merrill Lynch... into the ground. He lost $15.3 billion in the fourth quarter alone.

But before Thain basically gave his failed company to Bank of America, he took billions of dollars in taxpayer finds and divided it up among his cronies... bonuses. For jobs well done? Like the $40 million dollar bonus Thain himself demanded in October-- a nice follow-up to the signing bonus in 2007, part of the sweet $83 million compensation package he received in 2007 as his company was falling apart) and the $1.2 million dollar renovation for his personal office last year (after Merrill Lynch ousted its then-corrupt and failed CEO Stanley O'Neal, who shuffled out the door with a hefty $161 million dollars. Take a look at Zina Saunders' brilliant art work for Miracle on Wall Street.

Sorry for getting carried away. Where was I? Oh, yeah... none of us want to nationalize the banks. We love our banksters and how they steal billions and billions and billions from us. I mean, why steal millions when you can just as easily-- since there is never, ever, ever any accountability-- steal billions? I hope you read the piece economist Stirling Newberry wrote here yesterday. Obama is better than Bush in every way he can think of. But Obama is still one of them, has never been progressive, and never will be. His "solutions" are Insider for insiders, not, alas for us; we're outsiders. And, remember, we don't want to nationalize anything.

By the way, John Thain, his wife Carmen and their daughters Nicole and Victoria have been generous political donors, having given tens of thousands of dollars-- all but $2,000 of it to Republicans. Recently they donated $35,300 to John McCain, most of it illegally. Not only do we not want nationalization of banks, we don't want to end the most corrupt system of political financing the world has ever seen.

Yesterday's NY Times passed on some crazy, weirdo, lefty advice for us from the crazy, weirdo, lefty Swedes. They think we should nationalize the banks... temporarily. When Sweden's banks went bankrupt in the early 1990s the right-of-center government did just that. And it worked-- really well. Taxpayers actually made money on the deal!

Sweden placed its banks with troubled assets into a so-called bad bank, where they could be held and then sold over time when market and economic conditions improved. In the meantime, it used taxpayer money to provide enough capital to allow banks to resume normal lending.

In the process, Sweden wiped out existing shareholders.

By contrast, the United States government, so far, has bailed out banks without receiving large equity stakes in return, said Bo Lundgren, Sweden’s minister of fiscal and financial affairs during the Swedish bank takeover.

“For me, that is a problem,” said Mr. Lundgren, who called himself more of a free marketer than some Republicans. “If you go in with capital, you should have full voting rights.”

...In effect, the Swedish state took on all the assets that were worthless or impossible to value at the time, and then managed them or sold them with the aim of getting as good a deal as possible for the taxpayer.

“We hired real estate people,” said Lars H. Thunell, the former chief executive of Securum, the institution that became Sweden’s repository of all the underwater assets. “We hired industrial M.& A. people. We needed to manage real assets.”

The United States has become embroiled in a debate about creating its own bad bank after months of decisions to recapitalize American banks without taking control of them.

For all the billions of dollars committed to the banks by the Treasury and the Federal Reserve, American taxpayers have, in effect, used mostly loans to turn themselves into emergency creditors of the financial system.

For their part, bank shareholders have taken big hits as the stocks plummeted. But the government has largely avoided acquiring equity and diluting the value held by existing shareholders.

Former Swedish officials said that was a mistake, for political reasons if nothing else, because owners of bank stocks did so well in the boom years early in the decade.

Fears of bank nationalization are diverse-- skeptics worry that nationalization would cost too much, the government would not run banks effectively or nationalization would be too complicated. Mr. Lundgren, the former minister of financial affairs, said the costs of nationalization have to be measured against the perils a hobbled banking system creates for an economy.

Moreover, he said the mere threat of nationalization nudged some Swedish bankers to find creative solutions to their problems in the 1990s.

And as for the government not running banks effectively... compared to who? Thain? O'Neal? My Pet Goat? The GOP mantra that government does nothing right and private business interests are always the solution... that self-serving falisy died in the throes of the Enron, Halliburton and Katrina debacles... only the media never reported it so no one knows. We just know we don't want to nationalize the banks or take all those billions in taxpayer-funded bonuses and compensation packages back from the banksters. Right?

If you said "wrong, I wanna make a bank president twitch in a ditch" you're welcome to watch Mojo Nixon:



In a largely symbolic vote yesterday, the House passed an essentially meaningless resolution opposing spending the rest of the TARP funds. It's too late. 99 Democrats, including many of the most progressive and thoughtful members, like Alan Grayson (D-FL), Linda Sánchez (D-CA), Larry Kissell (D-NC), John Conyers (D-MI), Bob Filner (D-CA), Martin Heinrich (D-NM), Jackie Speier (D-CA), Carol Shea-Porter (D-NH), Hank Johnson (D-GA), Peter Welch (D-VT), Eric Massa (D-NY), Mary Jo Kilroy (D-OH), Dennis Kucinich (D-OH), Mark Schauer (D-MI) Tom Perriello (D-VA), and Chellie Pingree (D-ME) joined virtually all the Republicans and the worst of the Blue Dogs to pass it 270-155.

Eric Massa explained his vote against spending the second half of the funds to his constituents:

Today I voted to prohibit the release of an additional $350 billion to the Troubled Asset Relief Program. I cast this vote knowing that it is largely symbolic because the outgoing Bush Administration allowed the Senate to make the decision to release those funds. The Senate has voted to release the TARP funds and this will happen. I feel it is critical to stand publicly in opposition, not only to this program but, regretfully on this matter, to the leadership of my own party.
 
We are still trying to figure out where the first half of the $700 billion was invested by Treasury Secretary Henry Paulson. I am glad that we voted to add more oversight to future TARP spending yesterday, but I still do not support spending these funds.
 
I opposed TARP when it was first passed because there wasn't enough oversight and that is still the case. That money was supposed to have been used to purchase toxic mortgage assets to free up capital so that loans could once again be given to families. Instead, many of the firms that received this capital refused to start issuing loans. The recession continued after the passage of the first bill and while we do need to address this crisis, I think we need to have more oversight.

Amen!


UPDATE: AT LEAST INSIDE GOP MINDS, THERE IS STILL NO PROBLEM WITH THE ECONOMY

The Republican's version of the DCCC, the NRCC, has a current page on their website devoted to the current economic crisis Republican Party dogma and policies have dragged the country into. The GOP view of the state of the economy and what to do about it are there for all voters to look at-- and I hope they do. It starts with a bang: "Thanks to Republican economic policies, the U.S. economy is robust and job creation is strong."

Republican tax cuts are creating jobs and continuing to strengthen the economy, yet there is still more to do so that every American who wants a job can find one. Congressional Republicans understand that many Americans are working hard to make ends meet. That is why the GOP continues to push for pro-growth policies that create jobs and oppose tax increases that would add a burden to working families and set back our economy. Republicans believe we should:
• Allow families to plan for the future by making tax relief permanent.
• Encourage investment and expansion by restraining federal spending and reducing regulation.
• Make our country less dependent on foreign sources of energy through a comprehensive national energy policy.
• Expand trade and levels the playing field to sell American goods and services across the globe.
• Protect small business owners and workers from excessive frivolous lawsuits that threaten jobs across America.
• Lower the cost of health care for small businesses and working families through Association Health Plans, tax-free Health Savings Accounts, tax credits for employer contributions to Health Savings Accounts, Medical Liability Reform, and health information technology.

In other words, if you think everything is hunky-dory and on the right track, the Republican Party is the place for you. If, like more than 80% of Americans, you feel the country, and especially the economy, are headed in the wrong direction, this might be a good time to consider whose agenda brought us to where we are now and how we are going to climb out of the hole they have dug for us. The hair of the dog isn't the way.

A few hours after we posted this, the NRCC-- which had just updated it yesterday-- removed it from their site. Luckily, we kept a screenshot... for the historical record:




UPDATE: JOHN THAIN-- POSTER BOY FOR THE WORST OF WALL STREET'S CULTURE OF CORRUPTION

Don't just take my word for it. Zack Roth at TPM has all the gory, costly, Republican details, a John Thain Top Ten including the notorious commode on legs for the bargain price of a mere $35,115.