In the Wake of AIG: Obama's First Priority
AIG is rapidly becoming a nightmarish metaphor for the Obama Administration's problems administering the bailout of Wall Street. One central problem is the lack of transparency. According to some news reports, Treasury Secretary Tim Geithner knew weeks ago that AIG was planning to issue the bonuses to executives in its notorious credit default swap unit, and felt it was contractually bound to do so. But even if Geithner discovered all this just last week, he faces an awkward question about why he didn't know sooner. These bonuses in fact were only the latest if a series, and were not even distributed until last Friday. But it was not until Saturday, after the story leaked to the press,that Geithner went public to express his “outrage” about them.
Meanwhile, the Treasury has been readying yet another big multi-billion-dollar payout to AIG on top of the $170 billion already provided the company, because AIG has been hemorrhaging red ink. The company's balance sheets have been deteriorating far more quickly than the Treasury had anticipated. But there's been no clear exit strategy for stopping the flow of taxpayer money.
What’s particularly embarrassing for the current Administration is that it had promised to undertake the Wall Street bailout far more transparently and effectively than the way the Bush administration went about it. The Obama Administration had assured the public that, among other things, taxpayer money would no longer be used to backstop Wall Street bonuses. (It’s worth noting, in this regard, that the related plan put forward by the Obama Treasury to limit executive pay in Wall Street firms that received bailouts turned out to be riddled with holes.)
We've also learned that much of the 170 billion has been used by AIG to pay off AIG's putative obligations to other Wall Street banks such as Goldman Sachs. Goldman has maintained that it got no bailout money from the Treasury. But in fact it received some $13 billion through AIG. More troubling is that the original plan to bail out AIG was concocted at a meeting held last fall, run by then Treasury Secretary Hank Paulson who, before becoming Teasury Secretary, had been CEO of Goldman Sachs. Also attending the meeting was Lloyd Blankenfein, the current CEO of Goldman Sachs. Also at the meeting: Tim Geithner, then head of the New York Fed.
None of this would be nearly as awful if the Wall Street bailout were working. But here we are six months after it began and it’s still the case that almost no loans are being made to Main Street. This week the Fed is launching its own program to get loans to consumers financed by private investors, in effect by-passing the big Wall Street banks.
The Wall Street bailout is starting to look like the most expensive tax-supported fiasco in history. The problem for the Obama administration is that this bailout is near the very center of the President’s economic recovery program. It's not possible for the economy to bounce back until credit markets are working again. Yet even though the bailout so far is a bust, Geithner still hasn't decided -- or told the public -- how he's going to use the remaining $300 billion of bailout money differently.
The President cannot afford to lose the public’s confidence that his administration is a careful steward of the public’s money. The public was willing to go along with a large stimulus package. But it won’t go along with a second stimulus, and certainly not another TARP. And until the public feels confident that its money isn’t being thrown down a rat hole, it may balk at other ambitious undertakings such as health care or education or the environment.
Bottom line: Before it can clean up Wall Street or do much of anything else, the Administration has to clean up the way it's been trying to clean up Wall Street.
Meanwhile, the Treasury has been readying yet another big multi-billion-dollar payout to AIG on top of the $170 billion already provided the company, because AIG has been hemorrhaging red ink. The company's balance sheets have been deteriorating far more quickly than the Treasury had anticipated. But there's been no clear exit strategy for stopping the flow of taxpayer money.
What’s particularly embarrassing for the current Administration is that it had promised to undertake the Wall Street bailout far more transparently and effectively than the way the Bush administration went about it. The Obama Administration had assured the public that, among other things, taxpayer money would no longer be used to backstop Wall Street bonuses. (It’s worth noting, in this regard, that the related plan put forward by the Obama Treasury to limit executive pay in Wall Street firms that received bailouts turned out to be riddled with holes.)
We've also learned that much of the 170 billion has been used by AIG to pay off AIG's putative obligations to other Wall Street banks such as Goldman Sachs. Goldman has maintained that it got no bailout money from the Treasury. But in fact it received some $13 billion through AIG. More troubling is that the original plan to bail out AIG was concocted at a meeting held last fall, run by then Treasury Secretary Hank Paulson who, before becoming Teasury Secretary, had been CEO of Goldman Sachs. Also attending the meeting was Lloyd Blankenfein, the current CEO of Goldman Sachs. Also at the meeting: Tim Geithner, then head of the New York Fed.
None of this would be nearly as awful if the Wall Street bailout were working. But here we are six months after it began and it’s still the case that almost no loans are being made to Main Street. This week the Fed is launching its own program to get loans to consumers financed by private investors, in effect by-passing the big Wall Street banks.
The Wall Street bailout is starting to look like the most expensive tax-supported fiasco in history. The problem for the Obama administration is that this bailout is near the very center of the President’s economic recovery program. It's not possible for the economy to bounce back until credit markets are working again. Yet even though the bailout so far is a bust, Geithner still hasn't decided -- or told the public -- how he's going to use the remaining $300 billion of bailout money differently.
The President cannot afford to lose the public’s confidence that his administration is a careful steward of the public’s money. The public was willing to go along with a large stimulus package. But it won’t go along with a second stimulus, and certainly not another TARP. And until the public feels confident that its money isn’t being thrown down a rat hole, it may balk at other ambitious undertakings such as health care or education or the environment.
Bottom line: Before it can clean up Wall Street or do much of anything else, the Administration has to clean up the way it's been trying to clean up Wall Street.
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So is that checkmate? Can the economy survive if we just say, "Enough!", and try to pull the plug on the life support machine for Wall Street??
Everyone's been telling us that failure is not an option. But I sense a tipping point here; I can't see us spending another trillion dollars in the same manner, even though that's likely necessary.
What then?
-- ARG
March 18, 2009 2:35 PM | Reply | Permalink
I'd sure like the answer to that. I suspect that faced with the public's refusal to countenance another bailout, we'd suddenly hear that there's another way to do it.
Surely the AIG situation now looks like nothing so much as extortion; why is the focus not on eliminating this unacceptable set of circumstances, in which, for example, retaining a few AIG employees with their (huge or piddling, who cares which) bonuses is alleged to be key to holding off a further full-blown financial disaster.
March 18, 2009 2:45 PM | Reply | Permalink
Before we get too het up about AIG and sucked into the prevailing "outrage" maybe a pause to consider another perspective. I recommend "Bait and Switch, The Real AIG Conspiracy," by MICHAEL HUDSON in today's Counterpunch.org.
March 18, 2009 2:57 PM | Reply | Permalink
Here's a link to that article:
http://www.counterpunch.org/hudson03182009.html
For myself, I get the notion that the "real" scandal is all the money going to counterparties, and that this dust-up about the bonuses is being used as a distraction. That seems plausible, and we've seen this sort of thing before.
But is Mr. Hudson arguing that the AIG bailout is really a sweetheart deal for the counterparties, and that these counterparties should not be paid what AIG owes them? And, if so, what would be the consequences of not paying? Would Goldman Sachs still be solvent, absent the money it's owed by AIG? How about half a dozen other large banks?
And, do I care whether GS is solvent? Well, if we'd just have to step in and buy GS, too -- because they're too big to fail -- then yes, I care. But I don't really know the score.
That's my real frustration here: we've been told that it's a house of cards, and that if we let one more piece fail (a la Lehman Bros.), then its TEOTWAWKI. But is that true?
And is there any way to distinguish between the counterparties who were truly hedging against risk (and therefore need to cash in their "insurance" to cover their losses), versus those who were simply making side bets and hoping the whole thing would cave in? I'm more sympathetic toward the former, and not so much toward the latter (they were betting, after all, on AIG's ability to pay -- so they were wrong, and they should lose).
Bottom line, I guess the lack of transparency is the tell, isn't it? If this were above board, then we'd know the details and we'd know who would and would not fail without the AIG bailout. Since we don't know, we can assume it's all a smelly crock of BS.
-- ARG
March 18, 2009 4:06 PM | Reply | Permalink
"And is there any way to distinguish between the counterparties who were truly hedging against risk (and therefore need to cash in their "insurance" to cover their losses), versus those who were simply making side bets and hoping the whole thing would cave in? I'm more sympathetic toward the former, and not so much toward the latter (they were betting, after all, on AIG's ability to pay -- so they were wrong, and they should lose)."
This is an important moral distinction. If we try to step outside of morality at least for analysis, we can look at who benefits and who gets hurt by any course of action rather than who would we like to help/hurt?
Huge amounts of money flowed from investors and gamblers to homeowners in the form of both near-top bubble payouts to home sellers and equity loans to other homeowners. This money came from somewhere. It presumably represented real buying power looking to be put to work productively. ["presumably" because all money has an imaginary component ($ are invented by the Fed as credit)] Now those investors are looking at losses, whether they hedged with CDS which might not pay out or they simply are looking at an MBS instrument which represents very low cash flow and/or lower real capital value (assuming the real property is effectively owned by the security holder).
While these investors are not "little guys", many of them do represent real people (pensions, 401ks, etc). So I'd propose a real person safety net for such investors comparable to a soup kitchen for individuals. That is: Minimal.
The biggest losses so far have been imaginary - expectations have been dashed. The future isn't as rosy as many would have hoped. The question is: Can we put the bloom back into the rose and if so, how best to do it?
March 18, 2009 5:22 PM | Reply | Permalink
I think the idea of "minimal" bailouts is a great idea. If payouts are relatively small per entity, then it won't be like agribusiness sucking up the farm subsidies. A "minimal" bailout could make real people whole, and leave the burden on fake people, the corporations.
Anybody not believe that act two of this fiasco won't be to whine about how the government is broke and therefore social security and medicare have to be cut and means tested, further wounding the individuals who are already devastated by this Wall Street ponzi scheme?
March 19, 2009 9:35 AM | Reply | Permalink
And I wonder why the insurance hedgers bought to cover their losses was sold to them dirt cheap. (Makes me think of the insurance agent who sells a fire insurance policy on a fire-trap warehouse with the understanding that when the owner torches the wreck, the agent will get a cut of the pay-out?)
March 19, 2009 1:18 PM | Reply | Permalink
If Secretary Reich is indeed more troubled by [2] than by [1], I suppose he must take a very narrow view of [1], reducing it to a mere matter of lying and cover-up and self-servicing and other run-of-the-mill Goldman-Sachson attitudes. But the real centerpiece of [A] is all those other whizkid gentry getting bailed out by USA indirectly through AIG/GS, even though they didn't send anybody to attend the infamous meeting of the Gang of Four: "Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes." Thus Governor Spitzer has scribbled, omitting most notably Société Générale, which seems to have been second or third in line at the trough. (Could it be that his former excellency does not take so much interest in overseas crooks that Albany cannot easily get at?)
It does look as if the Gang of Four (wherein B. Obama, or perhaps L. Summers, has now replaced H. Paulson) cannot think of any Plan B despite the fact that bailing out the whole world through AIG for the greater glory of GS has not not shown much sign of success so far.
As an extreme amateur, I am intimidated by the fact that even Mr. Reich has no definite proposal to make, but it does occur to me that the G4 might at least come clean about Plan A when all those wheeler-dealer G20 foreigners come to Washington next month. The fact that they are not smart enough to be Americans doesn't necessarily make them dumbells all across the board, and, according to the perp Blankfein, at least, they have a (slightly) larger stake in recoveries from AIG than Americans.
Also, it would be nice to watch one of those intergalactic gabfests tackle a concrete problem for once. For that matter, perhaps if the holy Homeland™ were actually to ask the lesser breeds without to help us think through what an important policy should be, they might even decide to like US a little better. (But God knows best how well that plan would work.)
Happy days.
March 18, 2009 4:00 PM | Reply | Permalink
If I'm picking up on the general themes correctly, then I think Reich has it right: deal with the way we conduct this policy if we want to carry on the recovery agenda. That means more transparency.
Obama doesn't need to jump all over the place. Focus on the problems and fix them. If that means putting more out in the open and risking embarrassment, so be it. If it means firing Geithner (I don't think we're anywhere near that yet) then do it.
It might also help to propose a fast track for Treasury appointees. Some day the understaffing issue should be addressed by the Congress, right? There's a financial meltdown after all.
March 18, 2009 4:44 PM | Reply | Permalink
I would disagree: "It's not possible for the economy to bounce back until credit markets are working again. "
The point of the stimulus notion is to pump up economic activity DESPITE credit market issues.
And really, the markets are pretty much working, it's just that the illusion of low risk is gone, and the markets are dealing closer to reality than before. So borrowing costs (interest rates) are more realistic. Attempting to drive them down is a very iffy proposition if not an outright mistake.
I'm very disappointed in the pablum Obama is spooning out. It's not the kind of truth telling I was looking for... or if it is true enough, then the problems are still being blown out of proportion by many other folks.
March 18, 2009 4:59 PM | Reply | Permalink
Yes. Well said. Now, Bernanke is simply planning to turn on the printing presses in an effort to artificially inflate nominal growth rates. But, it will backfire. Obama is the most aggressively conventional thinker I have ever seen in office. Only his persona makes him seem like CHANGE.
March 19, 2009 9:42 AM | Reply | Permalink
The Counterpunch piece linked in a comment above is by a Michael Hudson at University of Missouri, KC, a William K. Black from the same University, Law School, who was on Diane Rheem a couple days ago, suggested:
...the trustees need to split off the derivatives unit from the rest of the firm and separately incorporate it. This step leaves AIG's other businesses free to operate as usual. If the recipients of the bonuses refuse to waive them, then the derivatives unit should at once be thrown into bankruptcy, terminating all obligations to pay them.
link
Black also says the bailouts of banks like Citibank are technically illegal, and will not as Geithner scaremongers, 'eliminate private banking':
We have a law that says when banks are at or near insolvency private shareholders should be eliminated unless we can arrange a transaction that has no cost to the FDIC. Receiverships produce "private institutions." The FDIC manages the failed institution only long enough to get it in shape to be sold at the least cost to the taxpayers. Receiverships end unnecessary bailouts of private shareholders, reducing the cost to the FDIC, as the law requires.
link
Obama's economic team does not include faculty from UMissouri-KC (too 'maverick'?) but does include Martin Feldstein from Harvard, a former director of AIG, and his student Larry Summers.
March 18, 2009 6:03 PM | Reply | Permalink
"...the trustees need to split off the derivatives unit from the rest of the firm and separately incorporate it. This step leaves AIG's other businesses free to operate as usual. If the recipients of the bonuses refuse to waive them, then the derivatives unit should at once be thrown into bankruptcy, terminating all obligations to pay them."
I'm thoroughly on board with this. Remember, Alexander took a different approach to the Gordian Knot and succeeded where others failed. Maybe instead of trying to unravel this mess we should take Alexander's approach. The derivatives unit is a money pit and will NEVER be solvent. Shut it down.
March 18, 2009 6:21 PM | Reply | Permalink
I've called for something like that, but I don't know if it could happen without serious lawsuits from the creditors of AIGFP who may have relied in good faith on the parent company AIG to cover AIGFP's liabilities.
Also, if AIGFP just goes under, what good is that?
March 18, 2009 6:44 PM | Reply | Permalink
Also, if AIGFP just goes under, what good is that?
The good of it is the counter-party Senior Special Credit Default Swap entities don't get insurance for their failed bets, they don't automatically get paid in full for their speculation on a housing bust, or if they weren't speculating, for being so dumb to trust Joe Cassano and AIGFP to pay them when and if the bubble popped.
We are talking about Goldman-Sachs, finance units of domestic and foreign banks, hedge funds, and some states and pension funds. If the Treasury and Congress think any of these entities need a bail-out they can do it one by one, and cut out the speculators like Goldman-Sachs and the hedge funds.
March 18, 2009 9:04 PM | Reply | Permalink
Who would work for the unit, after it's been turned into a separate toxic entity? It's not as if the employees of that unit are indentured to the company - they can legally quit and get new jobs.
Besides, this way we get to pretend that AIG may, eventually, pay us back. (See Liddy's editorial.)
Recall that it's not just the bonuses that are being paid with taxpayer money at the leading financial institutions - it's also the salaries. And that's not just at AIG - in effect, it's at pretty much every financial institution that's benefited from an infusion of federal cash (including the AIG counterparties that received money through AIG).
With all the talk about how, in this horrendous job market for the financial sector, all of these people could just hop over to another financial institution and make more money.... don't you ever stop to wonder, is any of this true? Perhaps what we're really seeing is a continuing justification for unjustifiable salaries and bonuses - a compensation bubble that we, the taxpayers, are being asked to float.
If we banned the companies receiving federal aid from paying bonuses, sure, some people would quit. In my opinion most wouldn't, because there aren't that many new jobs. And compensation packages across the financial sector should plummet - at least if the market can be said to apply to those salaries.
I'm also not clear on why retention bonuses would help. If the recipient isn't being overcompensated, the next guy is going to offer a signing bonus at least as large. If they are being overcompensated, how are they defensible? Why not instead ask employees, "When the next guy gives you a job and signing bonus offer, please let us review and try to match it"? I suspect it ties back to the wishes of the industry, as a whole, to maintain and justify compensation packages that simply cannot be justified by actual market forces.
I'm not convinced that maintaining the financial sector's compensation bubble is a "good thing", let alone sustaining it with taxpayer money.
March 18, 2009 7:10 PM | Reply | Permalink
"The trustees need to split off the derivatives unit from the rest of the firm and separately incorporate it. This step leaves AIG's other businesses free to operate as usual."
I read today that AIG's constituent "other businesses", which are fellow insurance companies under the larger AIG umbrella and which don't include the separate ponzi financial products division, have been lending each other outrageously leveraged and unsustainable amounts of credit insurance, likely making the so-called solvent AIG insurance business as liable to default as its derivatives-stricken.
This also seems to me to likely be the state of the entire U.S. financial industry, which, if it were a nation unto itself, would be the biggest FAILED STATE in history.
March 19, 2009 12:03 AM | Reply | Permalink
NCD - Feldstein is not a former, he is a current Director of AIG and a member of the Finance Committee, to boot.
March 19, 2009 5:25 PM | Reply | Permalink
Does the Hank Paulson/GoldmanSachs/Lloyd Blankenfein/Tim Geithner/AIG hookup mean that Paulson should go to jail? Let's not forget that Lehmann was allowed to fail just after that meeting and in part because Goldman claimed to need no bailout even though they were getting $12+billion in bailout funds through AIG. Smell bad to me.
Professor Reich, thank you for your service to the nation; our family greatly respects and admires you.
March 18, 2009 11:42 PM | Reply | Permalink
Obama's first move should be to fire Geitner for having his henchmen storm Senator Dodd to remove the bonus clause. After Timmy is gone get rid of the bearded one Bernanke. Another trillion created out of thin air bringing us another step closer to becoming a banana republic. Yet another dose of morphine for the masses so they can spend, spend, spend. This will not end well.
March 18, 2009 11:54 PM | Reply | Permalink
AIG needs to be cleaned up. And the only way to do that is for the government to seize full operating control of the company. Right now AIG shouldn't be a traditional 'for profit' company...nor should it operate under those rules. It is a public entity for now.
I used to work in the insurance industry back in the late 80's-early 90's at Gen Re. Back then there were rules in place that companies needed to have reserves on hand to cover any and all potential losses incurred or they couldn't not accept the risk. So in theory AIG should have had money set aside to cover any claims against the derivatives they insured. Trouble seems no one knows how to place an accurate monetary 'value' on the derivatives. So if a value can't be determined how can the potential risk be properly reserved? And in any case the derivatives were grossly under-reserved...to the tunes of roughly $180B so far. My question is do the rule about keeping proper reserves on hand still apply or was that repealed? And if they haven't been changed is there a criminal case of fraud which can be pursued against the AIG execs who were running the company when these derivatives were being insured and premiums being collected?
Bottom line the US government, owning 80% of the company now, should be making all the managerial decisions for the company and I think full reporting on the operations of the company should be made public on a regular basis (monthly, quarterly?). We have the right to know how our government is using our money to clean up this mess. And up to now the government isn't doing a good job on their part of cleaning up the mess or keeping us informed on what is being done. I was a harsh critic of the Bush Administration's lack of transparency and I am very critical of the Obama Administration being guilty of the same thing in how it is handling AIG and the bailout.
March 19, 2009 12:00 AM | Reply | Permalink
As far as I can figure it, AIG is not an insurance company.
AIG is a holding company, most of whose holdings happen to be insurance companies. Those companies are regulated by U.S. state and foreign government insurance commissioners. Since June 7, 2007 AIG Federal S&L has been regulated under a supervisory agreement by the OTS. But AIG is not regulated.
AIG owns a majority interest in a corporation named AIG Financial Products, Inc. -- a London based firm employing 377 individuals. This corporation was not regulated by any regulatory body (OTS has admitted some duty with respect to regulating AIGFP's sales of derivatives). In the event the products it sold were CDSs, and CDSs are not "insurance" products as defined under federal law.
The question is how could state and federal insurance and banking regulators allow this unregulated company to pledge AIG's income and assets against its gambling bets.
March 19, 2009 11:26 AM | Reply | Permalink
Why not--with the extra $300 billion--create a lending company with lower credit standards? Have it compete freely with the other companies which won't lend. Maybe pressure them to do so that way?
March 19, 2009 12:11 AM | Reply | Permalink
They called it 'retention' because they knew they couldn't get away (any more) with 'performance'.
I say, send in the FBI and a load of US Attorneys. This thing won't bare the scrutiny.
As far as the $300 billion is concerned, screw the banks -- spend it on mass transit or something else that we need.
March 19, 2009 2:08 AM | Reply | Permalink
"None of this would be nearly as awful if the Wall Street bailout were working. "
So if the Wall Street bailout were working, the AIG bonus situation would not seem so bad? So doesn't that then suggest that the real issue is that the Wall Street bailout isn't working?
Seems to me that this country is looking for a bogeyman to take its frustration out on. Its hard to get angry at abstract economic principles or honest but a potentially flawed bailout plan. I personally would be angry if Geithner were spending a disproportionate amount of time negotiating bonuses. I'm also angry about the bonuses, but right now I don't give a sh*t, I want to be able to support my family. It's like putting out a fire and worrying that the water isn't filtered.
This is one of the dumbest news cycles I've seen in a while, can we please return to discussing how to get the economy working again?
March 19, 2009 6:03 AM | Reply | Permalink
One more thing-- many opinion makers who are blowing up about these bonuses seemed to be of a very different mindset when it came to the stimulus package and all the pork in it. Indeed, the pork took up very little of the total recovery money, and the central issues were whether the bulk was being allocated optimally. E.g., tax cuts vs. infrastructure vs. housing. Those were the central issues as many otherwise rational pundits were arguing. Why are they now turning around and focusing so much attention on these bonuses, consisting of 0.1% of the AIG bailout?
March 19, 2009 6:30 AM | Reply | Permalink
Throughout all of this we keep hearing about how "taxpayer" money is going to the big banking corporations. Sorry, but that just isn't the case at all. We taxpayers aren't even paying the normal bills for this government. We don't like taxes, so we just "borrow" money to pay even the normal bills.
What is really happening is that the Federal Reserve is printing money to hand over to these corrupt corporations. Today we learn that an additional $1.5 trillion (does anyone have even a faint glimmer of an idea about how big a trillion is?) is being printed by the Fed to hand over to the corporations.
It must then be true that there is no limit to how much money the Fed can print and hand over. (A trillion is about as close to an infinite amount as we can conceive of.) Given that new fact, it is long past time for universal health care, free college education, near free housing, etc. all paid for with another $1.5 trillion printed up for our use by the Fed.
As a matter of fact, with great effort in the few remaining years I am likely to live, I think I can use .00001% of that $1.5 trillion in ways far more productive than the corporations will. My hand is out. (Please, I hope the Fed won't deposit what I expect them to deposit on my hand.)
March 19, 2009 11:34 AM | Reply | Permalink
I knew the minute I read about AIGs "counterparties" and saw Goldman Sachs - so that explains the Scam to keep AIG going.
"Does the Hank Paulson/GoldmanSachs/Lloyd Blankenfein/Tim Geithner/AIG hookup mean that Paulson should go to jail?"
Yes, Blankfein and Paulson should be in jail - and now Edward Liddy too. Mr. Liddy, appointed to AIG by Paulson, who also appointed Liddy to be a board member of Goldmans Sachs.
So Liddy was made AIG CEO to keep AIG going long enough to give the huge payout to Goldman Sachs - because they really did "need" that money.
I agree that there will be no confidence in the financial system by citizens - until we see these CEOs go to Jail.
Everyone knows this whole scam has been about Fraud - and we need to see Justice work - by convicting many Bank CEOs.
Then we will feel a little better - about losing our jobs, our homes, our health benefits, our retirement savings.
March 19, 2009 12:43 PM | Reply | Permalink
The additional fact that they obviously colluded to let Lehmann, Goldman's major competitor, fail shows just how corrupt these men are. I didn't know about Liddy's hookup; interesting!
March 19, 2009 1:13 PM | Reply | Permalink
The big question:
Who can Obama bring in when, nearly inevitably now, he fires Geitner? And how can he arrange that substitution in a way that credits Obama, rather than stinks?
March 19, 2009 2:02 PM | Reply | Permalink
It looks to me like the inmates are running the asylum. Actually, as I observe our government lately, it reminds me of the Keystone Kops -- running around frenetically in complete disarray! If it weren't so serious, it would be hilarious. As it is, it scares the heck out of me. But, then, what can you expect when you elect someone with NO experience to run the biggest show on earth?
March 19, 2009 4:32 PM | Reply | Permalink
WTF does that mean? Surely you're not implying that we'd be better off with John McCain in charge now?!
Did "W", former Texas governor, have enough experience for you? And how did that turn out for everybody??
-- ARG
March 19, 2009 5:57 PM | Reply | Permalink
If Galbraith is right and the only way to solve the credit problem is to improve the qualifications of borrowers and the value of collateral (houses, for example), then wouldn't the best solution be to take all this money the government is willing to print and invest in the problem and distribute it to the American people? A couple of trillion dollars, spread throughout the populace (instead of to a relative handful of already rich Wall Streeters), would create qualified borrowers to whom banks would be happy to lend money, shore up the housing market by significantly increasing the number of people who can afford to buy homes, and put people back into the market place demanding goods and services, thereby jump starting the economy and creating jobs.
What am I missing?
March 19, 2009 5:43 PM | Reply | Permalink
"A couple of trillion dollars, spread throughout the populace", would be about $6.67 per person*.
I think that's what you're missing.
-- ARG
* Assumes 300 million people.
March 19, 2009 5:51 PM | Reply | Permalink
WAIT! I TAKE IT BACK!! With apologies.
Calculator malfunction (operator error).
It would be 1000x that amount, or $6,667 per person. Still, I don't think that would do all the things you think it would do. (A family of four could use ~$26,000, but it won't likely keep them in their home if one of the breadwinners loses a job.)
-- ARG
March 19, 2009 5:53 PM | Reply | Permalink
But it might clear up their credit card debt and let them begin to spend what they earn on new goods and services. And, with every family of four having $26,000 more in purchasing power, there would be a lot fewer jobs lost.
March 19, 2009 5:58 PM | Reply | Permalink
Great idea, Aliceolson.
Here's something similar which I'd do once a year for two years -- approximately $2.4 trillion over those two years.
March 19, 2009 8:10 PM | Reply | Permalink
I'm confused: Why didn't we just say: OK, you're lousy at this, WaMu, so we're going to go into the mortgage business again, with a trillion dollars, and we'll buy up all the ARMs, starting with the ones in default or foreclosure as of a given date in the recent past, at (pick a %, 65? 80?) of face value, and then issue fixed interest loans to classically qualified buyers, for single-family primary residences only (at this point)?
Sets a value on 'toxic assets', starts to clean up the housing loan probs, and we see our money at work. Also, and this is the part I like most, the other financial institutions may fail, but now there's a new bank on the street, and customers that want out of JPMorgan, BofA, AIG, etc., have a new place to go. So those banks will eaither clean up their acts to be competitive, or they go the way of 'EF Hutton' - "When EF Hutton speaks,....people panic!"
If we had to add another Trillion, we'd still not have spent as mush as we have already, and confidence would still be higher than it is now.
March 19, 2009 6:31 PM | Reply | Permalink
Paulson designed this 'Ponzi' scheme (TARP). We understand everyone wanting us to buy more stock in order to keep the market up...fix the system...then we'll have 'confidence' to invest.
And that FIX is simple and oblivious, but everyone seems not to be addressing it directly...
- it's 'Corruption-Corruption-Corruption'.
ie. special interest groups, earmarks, lobbyist, elimination of rules and regulations, the financial sector having contributed over $5.2B to political campaigns, same people who got us in this mess are now tying to get us out (humanly impossible...they will, and have instead spent most of the time & money trying to cover-up the industry's underlining behavior).
Corruption is the 'root' problem here...as it is everywhere. Until that gets fixed first...everything else is redundant...we're just pouring $$$ into the abyss! Wall Street has always been Ponzi Street, and the Golden Rule always applies; 'never invest $$$ you can't afford to lose'.
Fix the 'corruption' - then we'll have 'confidence'.
The solution – 'Transparency-Transparency-Transparency'.
How? Start now Restructuring (nationalize, fix, resell) all the zombie banks - the FDIC does this every day.
March 19, 2009 7:51 PM | Reply | Permalink
March 19, 2009 (LPAC)--Lyndon LaRouche was not impressed today with the argument of Tim Geithner and others that it will be "very difficult legally" to recover $165 million in bonuses AIG just paid to derivatives traders with taxpayer money.
"They can; they're going to have to do it," he said. "All this bullshit: `we're going to see if we can do it....' The whole thing was a fraud perpetrated against the American government. And therefore, I don't care what the agreement was, if the agreement was an instrument of fraud, then the agreement is cancelled. It's that simple! Stop this bullshit! A fraud against the US government, does not mean this is an obligatory arrangement. If it's fraudulent, if it's misleading, if it violates the separation of state from private interests, in those cases it's cancelled, and these guys would pay the money back! I want us to get the money back, now!
"To teach the world a lesson as to who's boss," he added.
On the fact more than $100 billion of the AIG bailout has gone to cover derivatives bets, LaRouche asked, "Why should anyone have to pay that? It's a gambling debt! It's not an asset, it's a gambling debt! We should go out with an all-out pitch, the whole organization: `They're stealing! They're stealing! Stop them from stealing! The President must stop them from stealing. Somebody has to go to jail. These guys should go to jail!' The contracts should be cancelled! We're not obliged to honor it! It's a gambling debt! We don't pay gambling debts!
"Put organized crime into bankruptcy!" he expostulated.
"Cancel it! Cancel it! The United States government cannot be taxed implicitly for gambling debts. People who lose on gambling debts should eat their losses, or run away and hide!
"The idea that they had a moral obligation, or something, on the bonuses. This is what the crap is," he continued. "It's not legal: you cannot make agreements with the government, behind the government's back.
"And this was a crony operation!" LaRouche said, referring to the fact, among others, that Goldman Sachs has been the leading beneficiary from the AIG bailout, secretly receiving at least $12.9 billion of taxpayer money for worthless derivatives gambling-chits. "Call this cronyism gone wild. All these guys were cronies. A couple of these guys from Wall Street should be in prison right now! Sitting there awaiting trial, but under custody, so they can't run away. Goldman Sachs is the number one. The officers of Goldman Sachs should be in prison now, being held as a precautionary measure, so they can't run away, and they can't get any assets. This would be the proper procedure; this is a fraud against the government."
Former New York Governor Eliot Spitzer has just pointed out that the AIG bailout was agreed on last fall in a meeting of government officials Hank Paulson, Tim Geithner, and Ben Bernanke, joined by "private citizen," Goldman Sachs CEO Lloyd Blankfein!
"And they're afraid that someone is going to say this is an attack on the capitalist system," LaRouche added.
"Bankruptcy reorganization is exactly what should be done," he concluded. "The whole world system is bankrupt; therefore the whole world system has to be put into bankruptcy reorganization. That can only be done by individual governments and by groups of governments. So, the point is, cancel this whole thing! The bailout ends! We just went bankrupt; we're putting everything through bankruptcy reorganization!
March 21st Webcast Invitation
March 9, 2009 (LPAC)--On March 21, 2009 at 1 pm Eastern Time (10 am Pacific), leading economist and former Democratic Party Presidential candidate Lyndon LaRouche will address an international webcast of the utmost strategic importance for not only all American citizens, but for individuals everywhere. The event will be broadcast live at http://www.larouchepac.com
March 19, 2009 11:38 PM | Reply | Permalink
LPACTV: Pecora Commission AIG
4:34 minutes
http://www.larouchepac.com/node/9663
March 19, 2009 11:43 PM | Reply | Permalink
Larry Summers, the long-time protector of the psychotic Derivatives gambling trade, is likely the big problem in getting the Admin. to face reality.
Write the junk off--do not bail it out. Can they spell Chapter 11 Reorganization? FDR could.
Bailouts are so Bush.
March 23, 2009 10:06 PM | Reply | Permalink