Ah, the machinations that Faustian bargains produce!
The Obama Administration is now caught in its own machinations and is having to backpedal fast and hard from its bankster friendly posture, or at least have the public believe it is executing that maneuver.
While I cannot fathom the logic, Team Obama clearly decided to throw in its hat with the industry from the beginning, supporting a whole raft of tricks to keep banks from recognizing losses (heavens, might expose that some were bankrupt and require that incumbents be given the heave ho!). It also assisted in the “talk up the bank stocks” effort, since goosing prices would allow some banks to sell shares and save the new Administration the unpleasant task of figuring out how to resolve and recapitalize the sickest bank. It never seemed to occur to them that the best time for a President to take unpopular but productive action is at the start of his tenure. Nor did they anticipate that the public was not as dumb and inattentive as they assumed, and has taken notice of how the Administration has hitched its wagon to that of the plutocrats.
Now some readers might argue that, gee, things look better than the did in March, surely this Team Obama program was not such a bad idea. Well, actually, it was and is. The record of serious financial crises shows that regulatory forbearance (which is letting banks soldier on with the hope they will earn their way out of their messes over time) is more costly than forcing them to recognize losses and recapitlize them. Not only are the ultimate bailout costs higher with the “let ’em off easy” approach, but economic recovery is weaker too.
Team Obama is now having the contradictions in its stance exposed. If the banks were really healthier due to their own efforts, the salvos against them would be unwarranted. Here they had gone over the brink, pulled themselves up by their bootstraps. All these complaints about their earnings and bonuses are mere class jealousy. But no one save the banksters themselves believe that tripe. The banks got massive subsidies during and after the crisis; they continue now with the Fed’s super low rates and continued intervention in the mortgage markets (theoretically ending in March, but most informed observers expect the central bank to blink).
But Team Obama does not want to play up the extent to which the industry has benefitted from public munificence; that only stokes the deserved and correct public anger, which includes the Administration for cutting such a crappy deal with the industry. So it has the PR conundrum of having it be beneficial for political reasons for them to beat up on the financiers, but now being so deeply aligned with them as to make that impossible, save perhaps on a few narrow issues that it hopes will have sufficient peasant-appeasement value. Any full-bore attack would represent an embarrassing change from the Administration’s past fawning posture, and would also require the sacrifice of a senior head or two, presumably starting with Timothy Geithner, to look credible. But Obama seems constitutionally incapable of firing anyone, no matter how much it would serve him to do so.
The sketchy announcement du jour, that Obama will announce a $120 billion TARP fee this week (hhm, conveniently timed to distract attention from the start of the hearings into the crisis and Wall Street bonus announcements) illustrates the bizarre position the Administration is in. Alert readers may recall that Obama was touting the performance of the TARP at his Lehman anniversary speech in September. It repeated that palaver in December. As we noted then:
Both Obama and the Treasury Department keep talking up the TARP as if it is a money maker for taxpayers, when nothing could be further from the truth. Obama tried this stunt in his anniversary of Lehman speech, and the Treasury continues with the theme, of implying that results for the firms that paid back are representative of what the final results would be.
If this logic were generally true, that would mean subprime bonds were a good investment too. After all, most borrowers did make good on their mortgages. A late September Moodys mortgage survey that a reader sent me estimated that total losses on subprime RMBS will be about 26%, which means that 74% were money good.
The problem with the Treasury/Obama three card monte is that the strongest TARP are the ones that paid off first. Things can only go downhill from here. Do you expect AIG to repay the TARP in full? Or the auto companies?
But you’d never guess that if you took the latest propaganda at face value. From MarketWatch:
The Troubled Asset Relief Program has generated at least $16 billion in profit so far, the Treasury Department said late Wednesday…
Total repayments by TARP banks should top $175 billion by the end of 2010, cutting taxpayer exposure to the sector by three-quarters, the Treasury estimated.
TARP programs aimed at stabilizing the banking system will earn a profit from dividends, interest, early repayments, and the sale of warrants, it added. Bank investments of $245 billion in Treasury’s 2009 fiscal year were initially projected to cost $76 billion, but are now forecast to generate a profit.
Yves here. Did you catch that? This is too clever by half. They are now talking about TARP “bank only” results, which serves to omit the biggest turkeys.
So let’s return to today’s story and the PR corner that Team Obama has painted itself in. It isn’t willing to do the UK thing and decry banker bonuses as irresponsible and unwarranted. It had Kenneth Feinberg, the pay czar, take a few scalps, but it was clear the Adminsitration had no intention of challenging the financial industry’s right to loot and pillage. It isn’t even willing to say the profits are due almost entirely to subsidies, hence a windfall profits tax (presumably one focused on capital markets operations, that’s where the real juice is) is in order. Heavens, that might lead chump investors to question bank valuations and sell stocks! Horrors, can’t have prices that reflect fundamentals when the Administration has been pointing to the improvement in the financial markets as proof its policies are working.
So the finesse is now to admit, in a reversal of its recent posturing, that yes Virginia, the TARP is losing money (this is the first time they have admitted the obvious). So that means banks need to pony up more for the cost of their rescue. Of course, we omit the complicating factor that AIG has been the biggest black hole, that the deal was retraded four times (or is it five now, I am losing track), and some money flowed through AIG to foreign banks like Societe Generale and Deutsche Bank, who will not participate in this little levy.
Notice how this finesse keeps the focus on the TARP, the program the public already hates, and diverts attention from the man-behind-the-curtain stuff the Fed has been up to, or the FDIC guarantees on bond issued by the likes of Goldman.
Thin details as of this hour. From Reuters (hat tip reader Ray D):
President Barack Obama will announce plans on Thursday to raise up to $120 billion from major U.S. financial firms to cover expected losses from a taxpayer-funded bank bailout, a senior administration official said on Tuesday…
The Obama administration official said the amount of money raised from the fees would not exceed $120 billion since this was the higher end of conservative estimates of the cost of the Troubled Asset Relief Program, or TARP.
U.S. Treasury officials expect TARP losses to be much lower than that sum…
Bloomberg has the same sketch, save suggesting the announcement will come Wednesday, and more stage-setting quotes:
“The politics on this is really quite easy,” said Doug Elliott, a fellow at the Brookings Institution in Washington and a former managing director at JPMorgan Chase & Co. “The public would be supportive of anything up to shooting and burning the bankers.”
Up to? Elliot has clearly underestimated how upset some people are.
41 comments
Comments are closed.
They really are in an impossible position, since the absolute goal in all of this has to be to keep pretending that all this worthless toxic paper has any value whatsoever. That’s been the great project of Wall St and the government since summer of 07.
The overriding concern always is to prevent price discovery. To prevent the market from actually finding out what this crap is worth, the way it so ardently wants to.
Since every bank knows the garbage is worthless, none of them are willing to buy or further compromise their balance sheets by lending.
So it’s up to the taxpayers to shoulder the entire burden. That’s why this criminal government will continue to buy MBS. How can it stop at $1.25 trillion? The purchases are the only thing keeping the pretense going at all. The moment they stop the crash recommences. That’s why they lifted the bailout limit on Fannie and Freddie to infinity.
If they can’t figure out a way to directly buy the toxic junk from the banks they can at least do it through the GSEs.
The bailout is permanent, for as long as they can keep it propped up. This is Bailout America.
Since Obama was lying all along when he promised himself as a reformer, since he never had any intention of doing anything but trying to prop up the status quo, he found himself in this self-imposed bottleneck where he has no choice but to do what he’s doing.
Though his own political ineptitude and the fact that he’s a contemptible twerp the banksters can’t bring themselves to even pretend to respect has made it look alot worse cosmetically than it had to.
Like for example the fact that he clings to Geithner. That he’s gratuitously relinquished one of history’s oldest, easiest political tricks, sacrificing an unpopular subordinate to take the heat off yourself and buy time. That could work – look around and you’ll see how many delusional people still cling to the “if only the czar knew” myth.
But wingnut welfare seems completely wired into the system (it’s not just Obama, of course). Nobody can ever longer be fired or even minimally be held accountable for any level of incompetence or crime.
IMO taking strong action against Big Finance at the outset of the administration would have been just as popular as Reagan’s actions against PATCO and the postal workers were. Mostly the only whiners would have been the stakeholders of the companies affected.
A new broom should sweep clean.
I don’t trust any thing that comes out of Obama’s administration. As long as bankers’ incomes (individuals) are not directly targeted there will be no change. This will never happen. I’ve seen this before, the issue is not greed, insolvency, liquidity etc. The issue is government corruption. I know we like to think that the USA government is better than most and to enforce this illusion by changing the names of corruption. For instance, we call bribes “campaign contributions”, we punish corporations with fines and taxes yet we leave the real perpetrators unpunished. As long as we pretend that all is well with the system there will be no progress.
Yves said: “…the administration hitched its wagon to the plutocrats.”
Is it conceivable that Obama could have been any more mind-numbingly stupid than he has been?
He had the ordinary people solidly behind him. And he tossed them to the wind. And for what?
The man who becomes prince through the help of the nobles will find it more difficult to remain in power than the man who becomes prince through the help of the people, for the former will be surrounded by men who will presume to be his equal. As a consequence, he will not be able to command them or control them as he would like.
But the prince who comes to power through the support of the people will stand alone, and there will be few or none at all near him who will not be disposed to obey him. Besides, it is impossible to satisfy the nobles fairly without injuring others, whereas it is indeed possible to do so with respect to the people, for their wishes have more right, since they seek to avoid oppression while the nobles seed to oppress. It should also be noted that a prince can never be secure against a hostile populace because it is numerous, whereas he can be secure against the nobles because they are few. The worst he can fear from a hostile people is to be abandoned by them, but from a hostile nobility he must fear not only being abandoned but also being attacked. Being possessed of more foresight and shrewdness, the nobles will not let slip any change to protect their interests, and they will seek to gain favor with any potential winner. Moreover, a prince must of necessity accept the common people as he finds them, but he can very well do without any particular group of nobles, since he can make them and unmake them at any time by withdrawing or bestowing authority as he pleases.
–Niccolo Machiavelli, The Prince
It is obvious that Obama has convinced himself that he is the quintessential Machiavellian. He got the dishonesty part right. He got the treachery part right. He got the betrayal part right. But there is one part he got horrifically wrong, and that is the part about political calculation.
I love the reference to the Prince. And I completely agree with the underlying assertion in the Prince. Alas, I diverge with you about Obama “having” the support of the people. I think Obama knew he couldn’t keep the support of the people if he didn’t genuflect before the nobles. The marketing machine of politics is too great now, the people too willingly stupid and confused, to keep them for any length of time without the support of the nobles. I could be wrong on this, but marketers know too much now about the buttons to push to make the rats take a certain path in the maze. You can’t lose the support of the money and hope to keep the support of the people. I just don’t believe it.
Anonymous Jones,
Yours is certainly the classical point of view, which, as Hannah Arendt put it, “was to become authoritative for all time up to our own.” Arendt explains that:
In the entire tradition of philosophical, and particularly of political thought, there has perhaps been no single factor of such overwhelming importance and influence on everything that was to follow than the fact that Plato and Aristotle wrote in the fourth century, under the full impact of a politically decaying society, and under conditions where philosophy quite consciously either deserted the political realm altogether or claimed to rule it like a tyrant.
–Hannah Arendt, “Karl Marx and the tradition of Western political thought”
For Plato, as Arendt goes on to point out:
Persuasion had become to him a form, not of freedom, but of arbitrary compulsion through words, and in his political philosophy he proposed to substitute for this arbitrary compulsion the coercion of truth.
So for Plato, the faculty of speech, which lies at the heart and soul of political action, was “opposed to the perception of truth.” Truth, according to Plato, should be divined by “philosopher kings,” who, as Reinhold Niebuhr observes, are the ancient forebears of our modern-day “expert-kings” or “scientist-kings.” A modern-day manifestation of a “scientist-king” or “expert-king” can be found in the position/person of someone like Alan Greenspan—able to make policy decisions completely insulated from political exigencies.
The Founding Fathers of our nation were quite leery of the wisdom of the masses, but not nearly so pessimistic as Plato. Too many monarchs–surrounded by their philosophers, scientists and experts–were tyrants. The Hobbesian construct was obviously flawed. There had to be a better way. I like how Robert McAfee Brown, in the introduction to The Essential Reinhold Niebuhr, put it:
The mixture of grace and sin, in both individuals and cultures, works as a potentially redemptive rather than an inevitable destructive ingredient in our political life, to take one example. Niebuhr’s most incisive epigram shows why: “Man’s capacity for justice makes democracy possible, but man’s inclination to injustice makes democracy necessary.” We can use power creatively in the service of justice, and that is our glory. But we can also abuse power destructively in the service of self, and that is our demonry. Consequently, we need built-in safeguards to assure that no individual and no group accumulates too much power.
Arendt, in the chapter called “Lying in Politics” in her book Crises of the Republic, unloads both barrels into Madison Avenue charlatans like Edward Bernays. “[T]he psychological premise of human manipulability has become one of the chief wares that are sold on the market of common and learned opinion,” she excoriates.
And for a much more empirical overview I recommend Daniel Yankelovich’s Coming to Public Judgment: Making Democracy Work in a Complex World:
Opinion research in the U.S. does reveal a public strikingly inattentive to the details of even the most consequential and controversial policies. This suggests a potential for manipulation. But the research also indicates great stability and coherence in the public’s underlying attitudes and values. Americans show themselves perfectly capable of making the distinctions needed to determine what Harwood Childs called “the basic ends of public policy,” and of pursuing these logically and clearly. There is a persisting structure to American opinion that belies the picture of a populace helpless before the “engineers of consent.”
Anonymous Jones,
I would also add that I believe the latest findings from the multidisciplinary field of psychology-biology-empirical economics would not be supportive of the classical/Platonic position. These theories I believe would hold that many, if not most, people can instantly see through charlatans like Obama:
Our theories of how small-scale sociality (groups of hundreds, sometimes a few thousands) evolved in humans are rapidly maturing. The relevant conceptual framework is the theory of multilevel selection (Bowles 2006, Boyd and Richerson 1985, Choi and Bowles 2007, Lehmann and Feldman 2008, Richerson and Boyd 1998, 2005, Sober and Wilson 1991, Turchin 2006, Wilson 2002). The basic outlines of the explanation, however, were present already in Charles Darwin’s The Descent of Man, as well as in the works of such nineteenth century thinkers as Herbert Spencer or Walter Bagehot (Dawson 2002). “Selfish and contentious people will not cohere, and without coherence, nothing can be effected. A tribe possessing … a greater number of courageous, sympathetic, and faithful members, who were always ready to warn each other of danger, to aid and defend each other … would spread and be victorious over other tribes” (Darwin 1871). This mechanism of “group selection” was widely, if uncritically, accepted until the mid-twentieth century. In the 1960s–1970s it was severely criticized (Williams 1966) and replaced by the “individual selectionist” dogma (Dawkins 1976). In the last decade, however, it is becoming accepted that natural selection operates at all levels simultaneously—genes, cells, organisms, groups of relatives, and even groups of unrelated individuals. Multilevel selection provides the conceptual framework for the study of the evolutionary forces acting on different levels of organization.
[…]
According to the “social brain” theory, the evolution of human brain size and intelligence during Pleistocene was largely driven by selective forces arising from intense competition between individuals for increased social and reproductive success (Alexander 1990, Byrne and Whiten 1988, Dunbar and Shultz 2007, Gavrilets and Vose 2006). One can view language as a tool that originally emerged for simplifying the formation and improving the efficiency of coalitions and alliances. Thus, humans may be uniquely proficient at detecting and excluding noncooperating free-riders from cooperative groups.
http://cliodynamics.info/PDF/WarComplx.pdf
If one pays attention to Obama’s political history prior to running for president it becomes VERY OBVIOUS that he has never cared two bits about “the people.” His entire career has been spent in political and social climbing and unlike some politicians he never even bothered with leaving a few crumbs behind for the little people. While some people try and make a big deal about his being a community organizer, no one has even mentioned if or how he actually ever helped anyone. This is just one set of reasons why, for the first time in my life, I did not vote Democrat in a presidential election. He is and always has been only interested in his own welfare and those of his rich friends whilst seeking power from and for same.
“While some people try and make a big deal about his being a community organizer, no one has even mentioned if or how he actually ever helped anyone.”
When Obama was an Illinois legislator, he was said to have played an important intermediary role in that state’s move away from the death penalty. It’s something, anyway….
I share DownSouth’s reaction, if not his eloquence. I voted for Obama, but I can’t say I’m disappointed with him, per se. When he chose Biden and Clinton, it was obvious that Hope’n’Change was nothing but the purest PR bullshit. This was going to be a status quo administration all the way, though the status quo intended was the supposedly halcyon era of the 90’s — when many of the foundations for the current crisis were laid, of course.
But even with my low expectations, I’m astounded at Obama’s epic strategic stupidity. The finance “industry” is the dream enemy of any sentient politician. Obama should have used them, and their congressional scutboys, as whipping boys from the start. Instead, he’s given Republicans (!!!) a shot at profiting from justifiable populist anger. In this way Obama rivals the boneheadedness of the Bush/Cheney gangster syndicate, and that’s saying something.
Sglover,
I don’t know where political entrepreneurship has gone. It’s completely disappeared from the American political scene.
David Corn talked about the phenomenon in his interview last week with Bill Moyers:
Well, the Democrats have to worry. Because there is an opening here for the Republicans. If the Republicans looked at what the, you know, see any anger out there about the economy. And they, you know, start attacking the Democrats and say one reason that this is going on is because of Democrat tries to business and show that chart. And yes, we’ve had our own problems as well. You know, it could be sort of you know a major shift. I don’t think they´re going to do that. I don’t think they’re smart enough to do that, quite frankly. Or have the courage to do that. But that is one opening to have a major strategic change in the face of American politics.
http://www.pbs.org/moyers/journal/01082010/transcript3.html
Where are the Republicans cut from the same cloth as Teddy Roosevelt and Abraham Lincoln?
Hannah Arendt defined the political situation that exists in the United States today as “when power is laying in the street.” She describes a similar situation that existed in France a few decades ago:
Where power has disintegrated, revolutions are possible but not necessary. We know of many instances when utterly impotent regimes were permitted to continue in existence for long periods of time—either because there was no one to test their strength and reveal their weakness or because they were lucky enough not to be engaged in war and suffer defeat. Disintegration often becomes manifest in direct confrontation; and even then, when power is already in the street, some group of men prepared for such an eventuality is needed to pick it up and assume responsibility. We have recently witnessed how it did not take more than the relatively harmless, essentially nonviolent French students’ rebellion to reveal the vulnerability of the whole political system, which rapidly disintegrated before the astonished eyes of the young rebels. Unknowingly they had tested it; they intended only to challenge the ossified university system, and down came the system of governmental power, together with that of the huge party bureaucracies…
–Hannah Arendt, Crises of the Republic
Arendt believes that when “power is laying in the street” it makes for a politically dangerous situation, because there are always “professional revolutionaries” waiting in the wings like vultures:
The part of the professional revolutionists usually consists not in making a revolution but in rising to power after it has broken out… The loss of authority in the powers that be, which indeed precedes all revolutions, is actually a secret to no one, since its manifestations are open and tangible.
And Arendt expresses nothing but disdain for the professional revolutionary:
However, while the part played by the professional revolutionist in the outbreak of the revolution has usually been insignificant to the point of non-existence, his influence upon the actual course a revolution will take has proved to be very great. And since he spent his apprenticeship in the school of past revolutions, he will invariable exert this influence not in favour of the new and the unexpected, but in favour of some action which remains in accordance with the past.
–Hannah Arendt, On Revolution
And, according to Arendt, this action which remains in accordance with the past–the model of the professional revolutionary–is the one-party dictatorship.
While the Democrats have opened up a value-gap the Republicans could barrel an 18-wheeler through, it’s doubtful they will, because they are working for the same paymasters as the Democrats.
Here’s an interview with Thomas Frank, author of What’s the Matter with Kansas, talking about how the GFC gave Democrats a “once in a lifetime opportunity to defeat conservative populism once and for all,” which the mind-numbingly stupid Democrats immediately squandered:
http://democurmudgeon.blogspot.com/2010/01/republican-ayn-rander-rep-paul-ryan-and.html
Great stuff all day DS, do you ever run out of words? Hope not…
From the last link-
“But the problem … Government, in Mr. Ryan’s view, is alternately the tool and the terror of big business, doing one firm’s bidding as it crushes another one. The solution is to get government out of the game altogether, and Mr. Ryan fondly recalls the great deregulatory campaigns of the past (leaving out the embarrassing story of how he and his colleagues overturned Glass-Steagall and then watched the banking industry explode in a fireball of freedom).”
And for a face to go with the BS….
http://www.youtube.com/watch?v=FR_v4pDUiEU
I chose that clips for the comments (and names) attached on utube. Someone is a fan.
I have to say that is one of the best responses I’ve ever read. Quoting The Prince was sublime. It dealt with Obama’s situation perfectly. Bravo sir.
It doesn’t take much googling to learn that our DS is most likely a particular professor of philosophy
in Mexico City… and a woman, one clearly with strong feminist instincts. The “sir” presumption would presumably not be greatly appreciated.
Just brilliant, Yves. Thanks for making me ill and smile at the same time.
Russ
Why anyone would think Barack Hu-Sane? Obama would get ANYTHING right makes me question their sanity. All the implied shoulda dones and might have beens in the comments above really throw me.
I knew from the minute I heard the guy speak the very first time he was not cut from presidential cloth and did not have what it took.
What would you really expect from a community organizer???? these people do not create GNP. They abscond with it!
“I knew from the minute I heard the guy speak the very first time he was not cut from presidential cloth and did not have what it took…” Heh? And George W Bush did…? There is no ‘presidential cloth’, we are all cut from the same fabric.. I may not agree with everything that Obama is doing (or has done), but he’s ‘no worse’ than any of his predecessors. We may have expected too much.
I expected ordinary disappointment. Yves Smith and others remind me how extraordinarily disappointed I am. Freemon SandleWould and others remind me to be fearful of who’d be running things if Obama and The Stagnant Dems were not. Mostly I still appreciate that Obama and The Stagnant Dems haven’t really fucked things up like Dubya and Company; they’ve mostly failed to fix anything. What I still haven’t concluded is whether they CAN’T, or whether they WON’T.
Didn’t vote for President Obama. Did want him to succeed, so far he’s failing.
The $120 billion TARP fee is an interesting breech of contract, it appears to have some currency with the public. In some ways it has the appearance of being moral and ethical; yet, it is what it is, a retroactive tax. There’s a bit of a Constitutional problem there.
Everybody seems to see this TARP Fee as a PR exercise. In that vision there is the circumstance of a failing coverup. The Fed and the Treasury failed in their regulatory obligations. The Congress failed in its obligation for oversight of the agencies. This anouncement comes on the opening of the hearings that are intended to devine causes and a course of corrective action. Does this announcement put a pall over the impending hearings?
A lot of theater going on and very little substance. What’s that line in Macbeth; “. . . sound and fury signifying nothing!”.
Our government has failed us. In large part the occurance is the result of our inattention. I sense that all those student loans have been a great waste. Does the public understand that it does matter whether they vote. It does matter what policies that it asks for and receives. Isn’t it self evident that what the government doles out must be funded with either taxes or a devaluation of the money supply.
If you were around for WWII, you may recall rationing and stamps for meat and sugar and gasoline. You may recall the paucity of consumer goods and the forced savings that that experience engendered. You may recall that we were then a creditor nation. If you were around for that event you will probably agree that WWII marked the onset of our recovery from the Great depression.
It was savings, albeit forced that boot strapped us out of the Great Depression. A very important lesson has been trashed. If you think that government stimulus is going to save our bacon this time, consider the fact that you cannot, in recorded history, find a nation that borrowed its way to a sustainable prosperity.
“If you think that government stimulus is going to save our bacon this time, consider the fact that you cannot, in recorded history, find a nation that borrowed its way to a sustainable prosperity.”
Here’s an exception: the US in WWII.
We were a net creditor in the sense of a foreign creditor, and private savings were high (of necessity), but the US government was an enormous debtor. Industrial production was an enormous fiscal stimulus.
The US was a net creditor to the world for a long period post WWII. As to industrial production, from 1937 forward a great bulk of that went to armaments thru 1945. For example Detroit did not produce autos in volume until 1946. Now it is true that the government borrowed mightily to finance the war. We also lent mightily abroad via lend lease and other programs. Post war we had the Marshall Plan that helped to fund the reconstruction of Europe. But, what really caused our economy to explode was the pent up demand and the savings built up during the war. This savings supported civilian demand created such things as Leavitt (sp) Town and a general flight to the suburbs. Under Eisenhower we had the Federal Highway project the cost of which was small relative to the ultimate rate of sale for autos.
No no, the US is/was not the exception. Our initial economic growth post WWII was more dependent on forced savings than government borrowing. Moreover, from the 1940s thru the 1960s. The government taxed heavily to support spending to the point that the marginal tax rate exceeded 80% for high earners. I know, I paid those taxes and felt that they were confiscatory. The alternative was deficits and a the debasement of the currency which finally occured in 1971 after the LBJ guns and butter experiment. The start of our excessive consumption began in the 1960s and accelerated from 1971 forward when Nixon broke the Bretton Woods agreement. That act led to the demise of real metal coins and the replacement of Silver Certificates with Federal Reserve Notes.
What the government spends is funded either directly by taxation; or by the debasement of the currency. We debased the currency in 1971 and since that time we have continuously, save for a few surplus years during the Clinton Administration, added to the national debt. Since 1960, increments to the national debt have been incurred to accomodate transfer payments from wage earners to those with no income. These payments have taken the form of entitlements and price support programs and subsidies. Social Security is a Tax to support a transfer of income from earners to non earners.
Granted home purchases have long been supported by borrowing; yet, is that borrowing of the same nature as a home equity loan wherein price appreciation is extracted in support of consumption? I say no, the simple long-term loan made to support housing is a very different form of borrowing. It is closer in nature to the loan a business seeks to fund the acquisition of equipment, raw materials and to carry the inventory of a productive enterprise. Borrowing for the purpose of production is very different from borrowing to support consumption.
In my youth the great barrier to home ownership was the required downpayment, 20% for conventional financing and roughgly 5% to 10% for VA and or FHA.
We once had Silver Certificates and a coins that were struck with real real copper and silver, not amalgams. Home equity loans were not available. We had Regulation Q that limited the interest rate to passbook savings and you had to carry a very high balance in your checking account in order to avoid transaction fees and the cost of checks. Credit cards were uncommon and a substantial volume of trade was done with currency or checks.
I hold to my view, profligate borrowing in support of consumption cannot not be shown as a path to sustainable prosperity. In that there is a very big caveat, sustainable. The cost of our profligate consumption of the past 35 years has come due and the bill has taken the form of bankrupt banks, a deluded, if not corrupt Congress and a succession of Administrations that have come to power for the sake of power and not to serve to the commonweal.
This announcement of a $120 billion TARP Fee reeks of cynicism and pandering to a public that has too many disengaged and purportedly college educated obese people who are disinclined to vote and know little as to what the issues are.
As you can see, I not the least bit sanguine about this whole industry of spinmeistering that has become the norm of political conduct. Teapot Dome was an eggregious theft. Bailouts in lieu of bankruptcy are a theft of monies from the taxpayer that may never be recovered.
Gee, I don’t remember reading how taxes cuts, deregulation, and private industry involvement winning WWII (or for that matter ANY WAR.) If WWII is the most ready example of massive government spending and regulation – I don’t know what is.
““The public would be supportive of anything up to shooting and burning the bankers.”
Indeed. If Obama had announced that a B2 bomber squadron dropped a few bunker-busters on Wall Street and bank headequarters, and the survivors were being carted off to Gitmo, people would have cheered.
Fees? So the individuals that did committed the fraud will get off scott-free? Wonderful!
Of course they will. Coming soon to a theater near you:
Criminals Like Us
A Government and Bankers production
This from hearings:
Blankfein said his firm reaped rewards from government support during the financial meltdown.
“We believe that the government action was critical and we benefited from it,” he said. “The system clearly needs to be structured so that private capital, rather than government capital, is used to stabilize troubled firms promptly before a crisis metastasizes.”
Isn’t this the definition of windfall taxes? Here you have a CEO of GS admitting to that. How about it Obama?
The Financial Crisis Inquiry Commision should be holding hearings in Gitmo if not Jordan or Syria for questioning. That is the only way these clowns will talk sense.
Yves,
Here is another of Geithner’s unfatomable AIG cover-up statements which is clearly perjury.
As you have reported, AIG executive bonuses had become very controversial following the taxpayer bailouts of AIG.
On November 27, 2008, you reported on this controversy:
http://www.nakedcapitalism.com/2008/11/aig-plans-to-pay-retention-bonuses-to.html
This story was all over the blogosphere and even the MSM in November 2008 and thereafter.
Geithner testified to Congress that he first learned of the AIG exec bonuses in March 2008, from his staff. Here is one of numerous links that report his contention:
http://www.cnn.com/2009/POLITICS/03/18/aig.treasury/index.html
It may come as a shock to many, but Tim Geithner does not have Internet access. Moreover, his boss, colleagues, family and friends are forbidden to discuss relevant AIG stories that are on the Internet and MSM with Geithner.
So even though news of the AIG exec bonuses was all over the blogosphere and MSM in November 2008, it is not perjury for Geithner to claim that he first learned of the AIG bonuses from his staff in March 2009.
Right……
Isn’t it a crime to lie when you are giving testimony to Congress? Or is it not a crime?
Correction: “March 2008” should be “March 2009”
“Geithner testified to Congress that he first learned of the AIG exec bonuses in March 2009,….”
I keep seeing the word billion repeated over and over with this Obama-Speak and the joke is wearing as thin as Dr. Evil’s ….. word
Yves, this is a hard-hitting gem. Keep swinging for both the head and the body and you will help us prevail over the TBTF colussus.
Bernanke claims a $42.6 billion profit on paper the Fed bought off Wall Street balance sheets. Might we see the tickets or marks, please – or will these, too, be redacted?
How about a spur of the moment humane gesture from Blankfein et al: $50 million for Haitian relief?
“But Obama seems constitutionally incapable of firing anyone, no matter how much it would serve him to do so.”
This is patently false. During the campaign, and during its first year, the administration has repeatedly fired, or repealed nomination, of staff that became what they perceived as a liability. The distinction is that these were individuals not connected to the establishment. Hence we have tax evaders (Geithner IMF) and felony suspects (Bernanke BofA/Lynch, Geithner AIG) as well as funtionally incompetent (Summers, Harvard endowment) appointed, confirmed, reappointed, reconfirmed. But this has nothing to do with Obama being incapable of firing anyone – quite the opposite.
Those too serve who fail as desired.
“While I cannot fathom the logic, Team Obama clearly decided to throw in its hat with the industry from the beginning”
Here’s a name for starters… “Penny Pritzker” who was Obama’s finance chair during his campaign. She’s a bankster from way back and from what I’ve read about her she had plenty of experience with looting the government under other guises before Obama even ran for office. Given the particular set of elites who funded Obama’s campaign I don’t see how anyone who knew where his money was coming from could possibly wonder why he’s been supporting the banskters from the beginning. Quid pro quo, etc, etc.
As I mentioned in a prior comment, anyone who took the trouble to do a little research on Obama could have predicted this behavior on his part. But people did NOT want to see it… they wanted to believe in him. Most of my friends have come back and said they should have listened to me when I tried to tell them what he was really about or share my research notes on him (HAHAHAHA my thoughts and research notes had no credibility. even with people who respect my intelligence, given the strong force of propadanda and herd mentality). But I have simply responded that I don’t think it would have made any difference given the things are today.
“It never seemed to occur to them that the best time for a President to take unpopular but productive action is at the start of his tenure.” Sure it occurred to them. It’s called health care reform. For better or worse, they decided that was the top priority.
First, real health care reform is only unpopular with the health care industry. Second, what is happening is neither unpopular with the health care industry nor reform.
I love the comment, “Up to? Elliot has clearly underestimated how upset some people are.” Apparently Elliot is unaware of the “Jump you F**kers” poster in front of the NYSE that went viral on the web last year.