Can someone shut these banking industry narcissists up?
The one and only time I met Steve Schwarzman was in 1986, when he and Pete Peterson had just started the Blackstone Group. I was a manager (meaning a mid level working oar) at McKinsey. We had teed up a deal and were assisting our foreign client in hiring an investment banker. This transaction was sufficiently sexy that Felix Rohatyn wound up working on it personally.
But what did we get when we presented the idea to Peterson and Schwarzman? We explained why we came to see them. We got 40 minutes (I kid you not, I checked my watch) of name-dropping by Peterson, of all the senior folks he knew in our client’s country. But that wasn’t why our client came to see him; had he bothered to listen, the matter at hand was in the US.
Then he and Schwarzman spent the next 20 minutes talking about Blackstone, and they make it abundantly clear how jealous they were of leveraged buyout king Henry Kravis (at the time, Peterson and Schwarzman were mere advisor types, their looting wealth creating opportunities were far more limited than if they had oddles of investor and bank money to play with).
So in effect, they spent an hour telling us that they really wanted to be doing LBOs, that was SO much better paid than M&A, they wanted to grow up to be Henry Kravis, but since they hadn’t raised the money to do that yet, then yeah, our client’s deal might be worth their while in the interim.
I have never seen a pitch meeting (and this had been arranged at the senior levels of the firm) devolve into such a naked display of personal greed. The two partners who were there with me, neither one of them naifs, were as appalled as I was. As much as I have seen a lot of unprofessional conduct in my life, this still ranks as one of real doozies.
So nothing about Schwarzman since has surprised me. His Washington Post op ed today, “Lawmakers’ rush to punish banks threatens recovery,” in it attempts to defend the new world order of finance uber alles, is every bit as appalling in its own way as that brief encounter I had with him 25 years ago.
His article starts with the “We’re having a recovery!” meme, citing the 5.7% fourth quarter GDP growth, and improving output statistics overseas. But the US GDP results were largely inventory-driven. The improvement in reported unemployment was largely the result of a change in statistical methods. There have been some mildly encouraging signs, like an increase in the length of the workweek. But there has been, and continues to be, a substantial gap between financial market performance, which is still pumped up by super cheap money, and the still weak real economy. For the vast majority of the public, there has been no recovery.
But this is where Schwarzman starts with his defense of the indefensible, namely, that the banking industry should get a break:
We have also learned, however, that bank lending is still contracting in the United States and Europe, especially for small and medium-size businesses. Unless we reverse that trend, this incipient revival of the global economy could well sputter to a halt.
Yves here. Before we get one step further, it is important to note that the last survey of loan officers pointed to low loan demand, as well as tight credit conditions. Back to Schwarzman:
Blackstone is a major client of many of the largest banks around the world. And if there is one common theme that I have heard in conversations with senior bank executives over the past several months, it is that their fundamental business model is under siege. They are uncertain about the amount of equity capital needed to run their enterprises. They are uncertain about the amount of reserves required for various business lines. They are uncertain about the potential new requirements for special reserves they will have to retain in good times to use in bad times. They are uncertain about the ongoing level of taxes they will be paying. They are facing various proposals for what are described as new fees, which are the equivalent of new taxes. They are facing proposals to limit the number of businesses they will be allowed to be in and thus are contemplating having to shrink their banks and divest themselves of otherwise profitable assets. They are facing restrictions on what they can pay their people and are facing the possibility that many talented employees will leave for other financial institutions outside the public eye.
These uncertainties have severely hampered banking executives’ ability to plan how to run their businesses or even know what their businesses may include. Predictably, bankers are reacting to this unprecedented uncertainty by becoming conservative and cautious. The result is that there is less lending and less credit available.
Yves here. Notice what is missing? Do we have a single mention, or even an allusion, to the financial crisis? He has airbrushed out the excessive risk taking, predatory behavior, looting, and excessive leverage played, and that in turn was the result of over two decades of effort to free financial firms from restraint and oversight. Damned right their business models are “under siege”. That’s what happens when a populace mobilizes to respond to bandits.
The industry’s inability to see, much less admit, any culpability, and hence the need for root and branch reform, is pathological. The reaction of the bank chiefs, at least as depicted by Schwarzman, is utter denial. It’s as if someone who drove his car at 150 miles an hour, lost control, plowed through several houses but miraculously survived (only by virtue of going to the head of the line in the emergency room). He is miffed that what is left of the wreck has been impounded and he is forced to go to the police station and explain himself, and might have to pay fines, have his driver’s license suspended, or face other restrictions as a result of his reckless and destructive conduct.
And notice how the banksters are depicted as victims. There’s no mention of the fact that their business models aren’t working because the industry itself tested them to destruction. Securitization, which had become a crucial mechanism for everything from residential and commercial real estate to credit card and takeover loans, is in the deep freeze because investors were burned. As much as Schwarzman and the banks he is shilling for would have you believe otherwise, the difficulties in large measure result from aggressively redesigning their firms around “innovations” like credit default swaps that might have been salutary if used in only in carefully selected circumstances, but weakened their foundations by allowing them to operate with too little equity and too much leverage (note I am very skeptical re the genuinely productive uses of CDS, but I am willing to be persuaded otherwise).
And he fails to mention the 800 lb. gorilla in the room, the biggest reason for banks not lending: that they still have lots of unrealized losses. That leads to considerable risk aversion and the need to hang onto liquidity buffers. The “under seige” story is a convenient excuse to divert attention from the yawning hole on their balance sheets and blame correctly critical outsiders instead. For instance, the Congressional Oversight Panel anticipates another $200 billion to $300 billion in losses on commercial real estate. Similarly, I participated in a lunch with Josh Rosner and Chris Whalen earlier in the week. They went on at considerable length how much further banks had to go in writing down bad loans, how the industry marks were wildly unrealistic in some of the most obviously troubled categories (HELOCs), and that even a mild increase in short term rates would be very problematic.
But to Schwarzman would have you believe that the reluctance of banks to lend is due solely to government (and by extension, public) interference and hostility. He continues:
This country, of course, needs fundamental reform of our financial regulatory system, as I, and many other financial institution executives, have publicly advocated for a considerable period. But we are debating this hugely important issue in an inflammatory political atmosphere in which key participants seem determined to single out the banks for special retribution in reaction to the financial crisis.
Yves here. Please, this is laughable. How many executives have called for fundamental reform (and how do you define “considerable period”?). For the most post, the proposals offered, like the one Schwarzman penned last year, have more to do with consolidating oversight mechanisms and practices, and offer little in the way of substantive measures (for instance, Schwarzman called for consolidation of off balance sheet vehicles. While that is a welcome and needed measure, the FASB released its exposure draft on this topic on September 15, 2008, for a sixty day comment period. The odds are high that as of the date of his November 2008 op ed, this proposal looked likely to go through. So is lining up with a pretty certain to be done deal the same as being an advocate of “reform”? Not in my book. Note nowhere does his list include more equity for banks and broker dealers (a sure negative for his business), and it argue for an abolition of mark to market accounting for hard to value assets, when the abuses of recent approaches (the use of Level 3 accounting, or “mark to make believe”).
Now we go to the next bit:
It is important to remember that a variety of actors helped create the financial crisis. From our government, there was congressional pressure to expand homeownership by lending to borrowers who would not otherwise qualify for traditional mortgages. . As a result, Fannie Mae and Freddie Mac dramatically expanded their activities to accommodate this objective.
Yves here. Making Fannie and Freddie the focus of blame for the growth of subprime is overdone. The agencies were under severe restrictions as to balance sheet growth from the outbreak of their accounting scandals in 2002 and 2003 though late 2005. The GSEs lost market share in mortgage origination when suprime and near prime mortgages were taking off (note I am not denying that they played a role, merely focus on them). Back to the article:
Federal Reserve monetary policy reduced the cost of lending and encouraged borrowing. Private market participants may have used excessive leverage in some transactions. Regulators permitted dramatic increases in leverage at investment banks, and billions of dollars of debt stayed off some banks’ balance sheets. There was failure at virtually every level of regulatory oversight, including, critically, minimal controls over mortgage brokers, who encouraged many subprime borrowers to contract for houses or take out additional loans that they could never afford. Many banks lowered lending standards for various other commercial, residential and consumer loans while reducing their reserves for bad debts. Rating agencies bear a heavy burden of responsibility for assuring investors that securitized pools of subprime mortgages could get the highest AAA rating, when in reality they were highly speculative risks. Banks underwrote and sold these AAA securities around the world without a sober, objective examination of the underlying risks. Many of the purchasers of these securities failed to perform even the most rudimentary independent due diligence.
Yves here. The comments re lax regulation again misplace blame. Why was oversight so weak? Because the industry fought tooth and nail to have it that way. As the old saying goes, it’s like shooting your parents and asking for sympathy because you are now an orphan. While the rating agencies should join in any perp walk, but the article is again wide of the mark on the “complex securities.” Those AAA tranches often would up being retained by the banks themselves because, if they were hedged, the results were very flattering to trading desk P&Ls and trader bonuses (and yeah, the hedged failed for predictable reasons, but no one has tried to get the money back). And the vast majority of the value of those deals was in those same AAA tranches. The other parts were flogged very aggressively around the world, often picked precisely because they were incapable of understanding them, much the less evaluating them.
Back again to the piece:
To single out banks for blame is dangerous to the economy. If, as a result of this anger, credit becomes unavailable, particularly for small and mid-size businesses, in the amounts needed to fuel economic growth and job creation, then at best the economy will slow and, at worst, we will find ourselves in a dire situation, to which we all will have contributed. We need sobriety, rationality and civility in the discussions on the regulation of financial institutions so that the banks can return in a robust manner to their central role in funding the economy. We are on the road to an economic recovery. Let’s stay on it.
Yves here. This could not be further from the truth. What helped produce durable, well though out securities reform was relentless, public exposure of the abuses by the Pecora Commission, which kept public ire at a high enough level to maintain pressure for the development of complex legislation. The fact that Roosevelt threw his support behind financial reform in general and Pecora in particular was another important impetus. It led some bankers to break ranks on enough issues (for instance, smaller securities firms and the Rockefeller interests backed Glass Steagall; famed speculator Joe Kennedy proved an effective reformer as the first chairman of the SEC) to allow for expertise to be devoted to crafting sound measures, rather than obstructionism and Potemkin reforms.
The last thing the public should do now is turn down the heat on bankers. We have just been through the greatest looting of the public purse in history. We cannot relent until we understand how it happened and have put new rules in place to prevent its recurrence. People like Schwarzman need to understand that the populace is increasingly understanding that what has been depicted up as reform is mere industry serving pablum. Even if Schwarzman is incapable of seeing it, continued pressure will lead some of his colleagues to recognize that they need to embrace change or else wind up in the dustbin of history.
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Ok,
testing. (Sorry.)What hope is there when Wall Street has the POTUS on a leash? http://www.whitehouse.gov/blog/2010/02/10/clearing-bonuses-issue
Still missing the point. It’s not about greater shareholder control and better discipline in a free market. It’s about serious corruption. The bankers have become bookmakers. Even bookies lose once in a while, but these guys are TBTF. I think these guys are actually more like financial vampires. The president wants to appear to be pro-business but he fails to state what should be obvious. The financial cartel that controls the major economic pipelines is not good for business. How do we root them out?
How to root them out? You know, all these bankers are Americans – your fellow citizens. If your fellow citizens are corrupt, then find some that aren’t and elect them.
Of course, I would argue all Americans are corrupt so we get what we deserve.
Stop using credit. It’s the only way to break their hold on us. Rent, pay with cash, buy used cars with cash. Stop trading stocks and mutual funds. Buy only what you need to live.
Sacrifice if you want to take back your country for your kids.
It’s not the elected folks that I want to root out. The elite bankers who are pulling the strings are not elected officials. Some are appointed officials in government, but most are private individuals wielding enormous power. I’m happy using my ballot and pestering my representative to try and bring about democratic change, but it seems that the last 20 years have allowed the big banks to get the American government in a head lock. We’ve got a president who feels the need to demonstrate that he’s on the side of big business because the opposition have labeled him a socialist. He’s afraid to get on Wall Street’s bad side. He’s also had a lot of backing from GS and others so he’s politically fenced in. As a consumer we can certainly move all of our money out of the big banks and put them into smaller independent ones, but this will not ultimately hurt the big boys very much because they make the rules and create the odds. So with that in mind, what else can we do?
In response to another commenter who says that CAPITAL can go on strike, well fine but I want my money back. And no, you can’t go on strike because you took our money. Even if you paid it all back you are still maintaining stability on the fact that you can once again be bailed out if necessary. Paying executives multi-million dollar bonuses after they’ve had to rely on public funds in simply not acceptable. Trying to justify this is like saying “let them eat cake”.
What power do they have over you? Why did it matter to you if the financial system collapsed in 2008? Did you work for a bank? Were you invested in the stock market? Did you need credit to buy something you wanted?
These choices belong to all of us. If you rented, had no debt, were minimally invested in the stock market (or bonds) and didn’t need credit, you didn’t need the financial system and could have survived just fine. We gave them the power and we can take it back by changing our lives. Then it won’t make any difference if Citi fails.
OK – so this is simplistic. Your job probably depends me spending money on some service your company provides. When I stop doing that, you will suffer. That’s the choice though – continue to live in this fantasy world of personal consumption financed by debt or live a more simple life. How much is your personal comfort worth to you? Is it worth your country?
Our military personnel are making the ultimate sacrifice. Why won’t we?
I actually agree with you. I’m all for minimalism and bare subsistence. I just doubt that the fallout from the collapse of some giants in the finance industry would have meant the end of capitalism. They sold us a line. On the other hand, if the collapse of the entire system was what we needed to endure then I wish we had. Probably that is what will end up happening anyway. Money is an abstraction. It’s not necessary for life, but it’s hard to wean oneself off the drug (and it must be a drug if $500,000 a year is not enough for some people). In the meantime it would be a step in the right direction to repeal the Securities Modernization Act and at least get the corruption under control.
This attitude hides a deeper truth.
From 1960 or so on, the “money shufflers” have become more more prominent in the wealthy enclaves of our nation. The current FORBES list should provide ample backup for this thesis.
Financial Services as a % of GDP has increased to somewhere around 30% of GDP at the peak in 2007, depending your #’s. This trend has been broken, but not because of the 2008 crisis.
Nope, it is broken because both lenders and borrowers, have too much debt. They don’t want it. It can’t be service relative to income, whatever the rate. Banks can borrow for free, but credit card rates are rising. This is not illogical, it makes sense. Debt relative to output is tapped.
So instead of focusing on debt creation and monetary chicanery as a means to “get us out of this mess”, I’d like to hear to policy talk about output and demand. You hear that Obama? Not credit, not bank solvency – demand. The credit is there. We get that. You can print it.
Whats that you say? We don’t make anything anymore? I kind of agree, but we used to, and everything we need is right in front of us.
Well the lifelines of cheap credit are gone, so we must sink or swim.
We got on fine without a bank on EVERY corner. Some innocent people are gonna take some haircuts. Hell everyones gonna get a haircut. Its gonna hurt, but its not like NAZI forces are on our shores, its a mark on a ledger which means you have to consume less, until you make more. Thats it.
So lets all get off the ledge so the rebuilding can begin.
You wrote “the dustbin of history.” I think you wanted to write “a dumpster in Brooklyn.”
Schwartzman’s op-ed reads like a Kim Jong-il take on reality.
How true. Not a shred of remorse or empathy, only self-pity. This self-important schmuck reeks of delusional, egomaniacal messiah complex—like His Holiness, Lord Blankfein, God’s magnificent gift to unworthy, ungrateful wretches like us. Not only must we be careful not to show anger lest he withdraw his graces from us. We must be careful not to meet his eyes directly or even tread upon his royal shadow. YUCK!
These MFs haven’t even begun to feel real anger.
“Dustbin of history“. Would be a nice place for some banksters to end up. The whole thing might end up bloodily if
it continues its course.
You are certainly doing your job for it not to happen. Hats off to you and your fellow US financial bloggers.
Great post, and now, what do we do?
Trade short and be screwed by rule changes in the heat of battle.
Did I call them “vampires”? More like predatory prostitutes who would rape us and then demand payment. Seriously, how do we get rid of them?
Here in Mexico they have a saying that fits guys like Schwzman perfectly: Limosnero con garrote. The English translation is: Beggar with a bludgeon.
Here’s a video that illustrates the beggar with a club type:
http://www.youtube.com/watch?v=kttkuosSjQA
And yes, Mexicans were very quick to put two and two together and apply the pejorative to bankers, as this article from La Jornada illustrates:
”Bancos: limosneros con garrote”
http://www.jornada.unam.mx/2009/06/23/index.php?section=economia&article=026n1eco
I’ll translate some of the “Beggar with a bludgeon” video to English to give an idea of the plot:
(Two women are setting in an outdoor restaurant eating and two musicians are singing.)
First woman: “Poor things, they sing horribly!”
Second woman: “The worst part is they think they sing divinely.”
First woman: “Now they’re going to come and ask for money.”
(One of the musicians asks various patrons of the restaurant for money, and all refuse to give anything. )
Musician: “What’s wrong? Nobody wants to cooperate. Don’t they respect our work?”
(The musician grabs a knife and starts threatening and then stabbing anyone who doesn’t fork over money quickly enough.)
The analogy is really superb.
When you combine power and desire, you get someone who will tell you (outright or in subtext), “You can do this the easy way or the hard way, but you’re gonna do it one way or another.”
I have never seen a pitch meeting (and this had been arranged at the senior levels of the firm) devolve into such a naked display of personal greed. The two partners who were there with me, neither one of them naifs, were as appalled as I was. As much as I have seen a lot of unprofessional conduct in my life, this still ranks as one of real doozies.
Aww Yves, those special moments in life, that we review in the twlight of drifting off at night.
Skippy…When we think WTF!!!
Go get em girl. What did you eat last night? Nails?
I remember going to a meeting with Enron back in the late ’90s and needing to take a cold shower afterward. Schwarzman is talking his book. The timing of their IPO was no coincidence, these guys saw a top developing and got as much liquidity as they could via the offering. But all of these guys are in serious trouble if bond yields start to move upward, as they have recently. Schwarzman’s op-ed, just like BX IPO, is a signal of trouble ahead.
Ever notice how the words “I” and “me” — which was these jokers’ sole window of perception when the false profits were rolling in — ascends somehow to the respectfully inclusive “our” and “we,” when it comes to justifying the big bailout for the good of us all.
I wonder what rung of hell this man will cook in. There are so many alternatives. ha ha ahahaha hahaha ahahahaha.
Great stuff, Yves. This really is pathological behavior–and unlike the “robber-barons” of the past like JD Rockerfeller and JP Morgan, these guys don’t even build anything or add any economic value in their pursuits. They merely extract money from the machine without giving anything in return.
Great post, but I don’t think the content matches the headline. Am I missing a direct threat?
Why do you weigh what Whalen has to say so significantly? I understand his firm focuses on this but Whalen also said (look it up on Seeking Alpha) that Downey Financial was generally fine and no Indymac a cpl of years ago. Downey eventually went bankrupt. So it strikes me that these guys might have an understanding of various bank ratios but at the same time they provide, at this point, no real life constructs to back up their pessimism.
For example, the marks are nowhere near where they need to be? Ok in what magnitude? In Citigroup’s latest conf call, the CFO indicated that 66% of the loans in its corporate NPA bucket were CURRENT. C also was able to sell some of its assets ($10B) in its most toxic book, the Special Asset Pool, at levels ABOVE or at the marks they were at.
At the regional bank level you’re seeing NCOs come in under NPAs and provisioning having spiked in Q2/Q309. These guys were freaked out the past year and raised a ton of capital. Now I have gone through an equity burn analysis and think after the capital raises and deleveraging and think you need to really be expecting the end of the world to be short these banks at their valuations. Some at 0.4-0.5 tangible book with expanding NIMs, lower provisions, etc. And I’m not a pollyanna, I had received some recognition for shorting Downey from a $75+ stock down to $0 when some folks thought it was worth much more (blogged about the problems with Downey). So the idea now, that the banks that have survived and made it through in a nasty period seems laughable that they will all kick the bucket. When it was 2008 and the end of the world, the banks didn’t say take res paper to 0.30 on the dollar but leave CRE at par which is what a lot of folks suggest.
Next time Whalen should use a specific bank and show the downside through an equity burn analysis. I bet it would be a stretch to even the nastiest CRE regionals.
Everyone is wrong sometimes.
Whalen is mostly right, and his analysis is generally sound.
It really is that simple, when dealing with complex subjects.
Man oh man, do I completely agree with you on that, Jesse.
And his grasp of the history of derivatives and securitization is awesome.
Well said!
And BTW, don’t those PE firms (Blackstone included) have a bunch (as in around $33 billion) of PIK toggles coming due?
Just asking….
I like this imagery. (Remember Eli Wallach in ‘The Good, the Bad, and the Ugly’.)
For over 25 years the banks have been pleading for deregulation. And for 25 year the people thru their congress and regulators have answered by giving them more and more rope.
Then some of the banks found themselves standing on the rickety crate of our economy, hands firmly secured behind their back by their fellows in the financial industry, one end of the rope secured to the ceiling with boards from the crate, and the other end of the rope secured firmly around their necks.
They pled for help. The people’s representatives, partially loosened the rope around their neck then asked them to return some of the rope. Their responses were threats and ridicule.
Perhaps it is time to accept that we are dealing with psychopaths and leave them to their own devices!
Yves said — “He has airbrushed out the excessive risk taking, predatory behavior, looting, and excessive leverage played, and that in turn was the result of over two decades of effort to free financial firms from restraint and oversight.”
Well let’s airbrush some of that shit back in …
Vanilla Greed vs. neo-con Pernicious Greed
——————–
RED LINE vs THE NOBLE LIE
Vanilla Greed loved profit,
It used the trusty old red line,
To map out the hoods best cherries,
The pickings were always fine,
Along came Pernicious Greed,
Who cared only for control,
And saturated the hood with bubble bombs,
Entrapping ALL the marks its goal,
Vanilla Greed had to compete,
It was soon enmeshed in the fray,
Doling out cash for pumped up trash,
That was rising in ‘value’ each day,
Pernicious Greed smiled its knowing smile,
As Vanilla Greed pumped up the hood,
And next it fired derivative rounds,
The effects were pretty damn good,
A CDS here, an SIV there,
It was a shock and awe like trick,
As fraudulent notes hit and exploded,
Markets collapsed like an old limp dick,
Pernicious Greed laughed as credit dried up,
And the marks all screamed for relief,
It was time to drop the “Too Big to Fail” bomb,
And further add to all of the grief,
So with government shills and a paid for press,
The ‘Too Big to Fail’ bomb was exploded,
Divisiveness soared, the marks were stunned,
And the markets were further eroded,
Pernicious Greed laughed even louder now,
As it approached the end of its game,
The prudent were fighting the not so prudent,
The ruling elite were free of the blame,
Consumption was down, people were dying,
The results were exactly as planned,
A ruler and ruled world with no middle class,
So simple and oh so grand …
Deception is the strongest political force on the planet.
Yves,
While I agree with the thrust and intent of your article, read between the lines… What Schwarzmann and his ilk are really saying is that CAPITAL IS on strike and will remain there until the government backs off. Reminiscent of Ayn Rand’s theoretical ATLAS SHRUGGED, the “producers” have decided to starve the beast [both public and private looters] by refusing to lend. Maybe it should be termed a “credit lockout”. But why is it assumed that only LABOR can go on strike? Why can’t CAPITAL do the same and has it? If not, why not? Finance/banking is the chokepoint of the economy as its control over credit puts it in a preminent position to determine who thrives and who starves. Isn’t this what maximizing shareholder wealth really means? There is a huge, very significant difference between shareholders and stakeholders!
No politician, not even the POTUS, can call their bluff without SUSTAINED public support. Otherwise, it will be seen as an attack on the sacred institution of private property – SOCIALISM or worse, godless COMMUNISM! And since most Democrats are committed to this institution as much as their Republican counterparts, don’t expect much from either “party” in this regard.
Consider these three factors: 1) the government cannot force anyone to invest or lend money so long as the institution of private property remains sacrosanct; the means of production are privately owned; 2) government can only provide the appropriate basket of inducements in such a situation; and 3) as a corollary to the first two, government is DEPENDENT on CAPITAL for revenue via taxation and not the other way around. Hence, the “privileged position of business” in such a setting. Finance/banking have become preeminent [TBTF] among the privileged in this situation. Would anyone care to refute these three factors as they are the central pillars of a capitalist society? That’s the way it should be, right? The past 40 years of ideological indoctrination make it highly unlikely that this will change soon. Das Finanzkapitalism!
Rant and rave all you want but the new normal is CAPITAL can go on STRIKE and the public/private looters be damned. It’s a cruel lesson the American people will have to learn the hardway because they’ve bought into it from birth. Changing this belief system will not occur overnight, if at all.
1) The government can print money. It could pretty much dilute all the holdings of private corporations and redistribute the new cash to private citizens if it chose to. That might seem incredibly foolish and ridiculous but it would be legal. That seems like a trump card to me. Maybe I’m wrong about this but I don’t think so.
2) I guess
3) Finance/banking as a whole is and ought to be preeminent. Individual banks need not and should not be. The government depends on capital and yet players in the capital markets have needed to be propped up with public money. We should have let them fail. The carnage may have been terrible but the precedent is worse. You can’t have a free market economy where the losses are nationalized. This is lemon socialism. What lessons have been learned in the banking sphere? Apparently none.
Okay, the government can’t print money. Only the Fed can and they’re not a government entity. This is a more common misconception than most finance types probably realize. I am a neophyte. Damn, that would have been a good one. Still, I think we have a right to be angry and should not let up.
Matt,
If the government or Fed implemented what you’ve stated it would alter the dynamics of a capitalist society in a fundamental way wouldn’t it? Is such a policy feasible at this point in time given the forces involved? I just don’t see Bernanke, Volcker, or anyone for that matter willing to contemplate such behavior. And one certain consequence of such a proposal would be the flight of capital out of the country at a rate that would leave all of US running to the banks.
If one accepts the fundamental premises delineated above then the consequences of doing so have to be understood before one can even begin to consider how to transform them. Would you agree with this? That’s all I’m concerned with at this point.
The principle is very simple at least from the standpoint of capital. We don’t tell you what to do with your money so please don’t tell us what to do with our’s or your deposits as the case may be. If you accept the ascendance of CAPITAL as legitimate, the way things should be, then accept the fact that there’s nothing that compels a bank to lend or not to lend. If for political reasons it chooses not to do so, then it is within its rights.
As for the shibboleth of free markets, I would ask that you provide one historical example of one. Without government enforcement of contract, the rule of law, etc there’s never been one. If so, where, when, and why did it fail? ‘Free market’ is a theoretical construct that has little to do with historical reality. It is part and parcel of why capitalism is deemed the only viable socioeconomic system in this country. It is not questioned but taken as a given… Until this changes CAPITAL will remain ascendant. I don’t know what is so controversial about this assessment and the premises set out above.
Is it an accurate description of the way things are or not? If not please correct me. I’m willing to learn and/or see the errors of my ways.
No, that monetary policy would be a disaster. I was just trying to show that government could devalue private property. That was incorrect. Even if the Fed can do it, that would be disastrous. However, it does mean that banks don’t ultimately control the economy. Economic policy by the Fed implemented correctly does.
“We don’t tell you what to do with your money so please don’t tell us what to do with our’s or your deposits as the case may be”
Is it okay if I ask you to please not commit securities fraud? Please don’t mislead investors into buying securities that are higher risk than they are assessed? Please do not obstruct independent assessment of these vehicles? And is it really okay to sell products that you’ve decided are a loser without disclosing your true opinion and then place bets against the performance of those? And is it okay that what is effectively insurance is not regulated because it is constructed as a “swap”? The banking industry needs more regulation. The regulations that were lifted in 1999 need to be reinstated. More need to be put in place so that two or three companies behaving unethically cannot threaten the entire global economy. And (Mr banker) the money that we are debating is not deposit money, but taxpayer bailout money. Believe me, taxpayers are very interested in what is happening to that.
If there ever was a truly free market in the United States, it ended with the New Deal. I don’t believe in a free market, but I’m tired of hearing about how the market unfettered can cure all of our ills. We tried that. You want a “free” market, you’ve gotta take the lows along with the highs. Don’t ask us to bail you out by pleading how we need you. We can find a way to survive. Don’t justify absurd payouts and then expect us to believe that an efficient market is the ultimate aim. The money movers are a new aristocracy. “Let them eat cake” I hear you say.
Matt,
From your comments it appears that you merely want to reform the banking system with regulation whereas I want to replace it with an economy that is EQUITABLE, SUSTAINABLE, and PROFITABLE. [ESP] At least that is the long term goal… Banks will have a role but it will not be as preeminent as it is now.
If that translates into something beyond CAPITALISM then so be it. At this stage of the game, reform will not prevent someone intent on gaming the system from doing so. I’m more interested in what Andre Gorz termed ‘non-reformmist reform’.
As an interim solution I would propose that any financial innovation be subjected to a regulatory process similar to that required of the pharmaceutical industry when it seeks FDA approval for a new drug/medical procedure. At least before the deregulatory virus infected this agency too. But if deemed too risky or systemically threatening then it wouldn’t be implemented. But this “reform” has about as much chance as a snowball in hell. That’s why any talk of systemic reform and additional regulation leaves me a bit more than skeptical.
Hmmn. That’s an interesting idea but I don’t think it would fly. I’m not disagreeing with you. I think the system is broken beyond repair because the power base is too strong. That’s why I’ve been against the TARP program from the beginning. I wanted the stricken firms to go belly up. Nobody is too big to fail. A blood bath like the one that led to the 1929 crash would have let us start at ground zero. Roosevelt rebuilt America. Obama could have been the next Roosevelt but instead he’s turning out to be another Jimmy Carter. The bankers have learned nothing. If we’re still talking about reform then I’d at least like to turn the clock back 15 years. First order of business is get Goldman Sachs the hell out of government. Second order of business is repeal the Securities Modernization Act and break apart the mega-banks. Third is investigation and prosecution of any bank executives complicit in fraud. If we don’t send a strong message then they’ll never change their business practices.
Some mechanism along those lines — printing money and handing it out — might be very salutary. But it would depend on how it’s done.
If policy were creative, regional jurisdictions such as cities, states, etc. could issue “money” simply by crediting accounts of taxpayers with a new currency that could be used to pay state and local taxes. Right away, this would anchor it’s value to the US dollar.
There could be a few restrictions on this currency to make it useful for wealth creation by those most deserving and not for speculation by bankster pyschopaths, such as: 1) It could not be lent. It cold be held in speical accounts, but not lent by banks or any other institutions. 2) It must be spent before the following annual tax filing deadline, forcing a certain velocity upon it; and 3) It must be spent in the city or state and in certain defined economic zones, to foment commerce among those in economically depressed areas.
This would help monetize the “creative spirit” of the community in the way that bank credit does, but it would be more like an equity investment that the community makes in itself, as opposed to the ball and chain of usury.
The whole notion of money is ripe for a re-examination. Although one might have said that, also, in 200 BC. But sometimes, things take time. :)
craazyman,
hold that thought… you might want to regurgitate and recycle that several more times as the crisis rolls on
Actually, see the comments in the recent Randall Wray post. The government is the one that makes the decision to “print”. It’s determined by how much of a deficit they run (very crude summary, but not inaccurate).
There’s a clinical term for this kind of person: “sociopath”. Excuse me, I mean, “psychopath”.
They are now in charge of things everywhere in our culture. Get used to it.
If you watch Bloomberg Television these days you will see the Steve Schwarzman perspective being enshrined as a mantra. They must have played his interview from Davos a 1000 times.
I have never seen a television network take a turn for the worse more quickly than Bloomberg TV in this financial crisis. It used to be a fairly decent news network. It has now turned into a blatant propaganda channel with smirking ‘reporters’ who have the emotional perspective of teenagers fawning over their favorite pop stars.
Bloomberg has bought the neo-con pernicious greed ideology, hook, line, and sinker and he is working the divisiveness meme like the psychopath that he is. Good cop bad cop bullshit prevails. He’s an elite little prick with a focus on depopulation and privatizing the commons of NYC.
But then his propaganda sucked when he was back in the vanilla greed camp too. You might want to consider why you would even want to get your news from a slime ball, low life, piece of shit billionaire.
Deception is the strongest political force on the planet.
So much for Bloomberg’s Tom Keene espousing their “smart journalism” as their way to compete with “entertainment journalism” as seen on CNBC!
Fabulous article, Yves.
Sidhu: Why banks don’t need Volcker reforms
From 2/4/2010 Philadelphia Inquirer: http://www.philly.com/philly/blogs/inq-phillydeals/Sidhu_Why_banks_oppose_Volcker_reforms.html
New Century Bank ceo Jay S. Sidhu, former head of the former Sovereign Bank, went on Fox Business TV last night to talk about what’s wrong with US banking and what ought (and ought not) to be done. He said:
On Senate Banking Committee Chair Christopher Dodds, D-Conn., and his slow movement on Obama banking re-regulation: “He is retiring. That’s why he is talking the truth.”
What went wrong?: “Number one was leverage,” borrowing too much and letting customers borrow too much. “Number two, was that you know we had a very easy monetary policy. The Fed kept the interest rates too low.
“Number three was the Democratic Congress, as well as many Republicans, pushed home ownership. They said let’s keep pushing it until we crash. Let’s find out when we will crash. And so when the homeownership hit 69 percent the market crashed.
“Another one is that we had derivatives. We were allowing banks to be creating derivatives, insurance companies to be creating derivatives, and there were no regulation and no controls over it.
On the bank-limiting reforms pushed by ex-Fed chair Paul Volcker: “Let’s address the root causes. And not to be talking about whether banks should be allowed to own hedge funds. Banks should be allowed to own private equity firms. I don’t know of any bank that got into trouble because they own hedge funds. I don’t know any bank that got into trouble because of private equity (or) because they were too big…
“What is the business of banking? The raw material of banks is gathering deposits, paying a fair rate for it to process it and put it to work…. It is a good business. And now we shouldn’t have just unnecessary controls over it….We have to got fix the problem. And the problem is like what I said it was lack of appropriate regulation. Lack of coordination between monetary policy, fiscal policy, and (an) ideology of ‘it is great to have homeownership”, and a lack of control over derivatives…
“The whole problem with the global economy is too much leverage. We’ve seen the consumer deleverage. We’re seeing corporations deleverage. But nobody is talking about the sovereign nations need to delever, too. I mean look at the debt in the United States.
“We are going to be in trouble in the United States. That’s where we should be addressing our major problems and not talking about more and more unnecessary stupid regulations for banks… Just because it is a popular thing it is not a nice thing to do.”
You need to notice the recurring narrative, especially blaming Congress for a political ideology intruding into banking, the irrational push for home ownership, when there is no effective demand. Schwarzman and Sidu, echo the blame the victim PR gimmick, this update on the welfare Queens owning 2 Cadillacs. If only no doc loans were not forced upon mortgage lenders at gunpoint, we could have avoided all of this unpleasantness.
Fannie and Freddie had nothing to do with Continental Grains subsidiary, ContiFinancial, offering 90% LTV low credit score, high interest rate, high yield spread, junk fee dripping loans. It should have been a major warning when ContiFin went belly up in 1999 during the Russian currency crisis. The problem with Conti then is the problem of today, securitization. That was a $12b portfolio and the problems were enough to kill a merger with GMAC as the closing docs were being inked. Other companies went under at the same time or soon after, like American Business Finance, which was welcomed by Mayor Street of Philadelphia with open arms for the 1,000 jobs it brought into donwtown from the suburbs, only to take economic development money and also go belly up. So many of these companies could not sustain the sub prime model, what makes a larger scale effort by the Wall Street investment banks any better able to avoid the pitfalls that were quite clearly demonstrated by 1999. The response, even more outrageous loans, at 100% LTV. To quote from New Century broker’s handouts dated Nov 2005: Reason #10 to do business, Bankruptcy payoffs up to 100% CLTV with cash out Chapts 7 and 13 one day out of discharge down to a 550 credit score. I don’t believe that is a Fannie loan product. Or maybe I missed an email.
The bankers have to rewrite history by waging psychological warfare on the public’s attention, and get them to believe that a deregulated banking and financial services industry combined was done in by government regulators, that had already been decommissioned.
One thing that can be done, is to push back whenever you hear or read this. Call up the Newspaper and get an opposing view heard and published or on the air, to counter the narrative and how it is being framed.
I’m not sure of what you intend to convey. I accept that capital can go on strike. Never doubted that premise, its always been there. So, it seems that you and I would disagree about whether capital is in action or ‘on strike’.
Schwarzman is talking his book. he doesn’t want regulation. He does want lots of leverage and a very low interest rate because his deals are exercises in extraction and the keystone of that exercise is a very low interest rate cost.
The public is becoming more aware of this extraction exercise. Mr. Schwarzman needs to reflect on his current public personna. Who shall he be today? I think he needs to extract himself from the drama.
Thank you for a wonderful article. Now I completely understand. This housing bubble was created so that financial “safeguards” could be put in place and when the crash happened, more money was made on the way down. Now it’s time to see who really made the money. This article seems to point to the banks: They loan money to make interest. They package the loans and sell them to make money to loan to make interest. They sell insurance on these loans and packages so they can be paid for a realized loss by the owners of the original loans (the FDIC), additionally having spread their risk out so that now they get paid by every taxpayer whether or not the taxpayer has contributed to the original loan. Ingenious.
But is it really the banks that are going to make the money? I believe the Fed owns a huge block of the loans and debt-based objects, so it seems to me that the Fed stands to make the most money from this deal. After the Fed takes it cut for the member banks, it’s likely it will return this money back to the Treasury. Of course, all this has to be paid for by us taxpayers. If this is the case, it appears to be a way to force the raising of taxes.
Also now I understand why a foreclosure is a far better deal for the banks/Fed than a restructured loan or short sale is.
“Yves here. Notice what is missing? Do we have a single mention, or even an allusion, to the financial crisis?”
This is becoming a common theme (as an error of omission) in the conservative/libertarian leaning media. During the crisis, they blamed it all on the government (GSEs, CRA, etc.); now, they seem to want to pretend that the crisis never happened at all.
Among the other increasingly common things:
1. Anybody saying anything remotely negative about the bankers, the Treasury’s response to the bankers, or Bernanke and the Fed are now “populists”
Indeed, if you scan any major paper, this term is being usedd more and more frequently. Not only that, but op-eds supporting the banks’ positions are far more numerous than those who are questioning all this support.
2. Politicians are stumbling all over themselves to be labeled “business friendly”. It hasn’t occurred to any of them (yet) to be “voter friendly” or “taxpayer friendly”
Exactly Rue,
Hear no evil, see no evil, speak no evil. That is how the revisionist history of the elites is being written in testimony, in the media, and in all the PR channels.
You will note in all the testimony (even and especially lawmakers) framing the sequence of events leading up to, during and after the crisis as “mistakes.” Nothing illegal, criminal, fraudulent, racketeering ever occurred. Adam Smiths invisible hand just went a little too excessive, and if they just self-regulated themselves a little better, this could have been avoided (see Bernanke denial of role of monetary policy and shift of blame to lack of regulatory oversight by his own and other agencies) For cry-eye!
You guys are way too nice – including Yves. Not to get ‘biblical’ here but the scene with the moneychanger tables in the temple comes to mind.
Sometimes a simple admonishment just isn’t enough.
Cough.
JW
Jeff,
You are absolutely right. I had that vision going through my head the past few days.
It IS serious corruption–with Gaithner,Bernanke, Paulsen, and Summers all helping GS to do the looting.
How does Bernanke jsutify getting rid of uptick rule in 07???- ya think to help plant the se CDS timebombs in worldwide economies?(Davis Strait/Abacus)-oh–and that’s right–that’s at a time when GS was losing it’s shirt-jsut b4 Buffet-and 25% stock owner in Moodys’-the very agency which oversaw/made $ off GS-lent them $5 bil–with consecutive losing q by GS on promise US Fed would bailout (conspired with I should say!)This also at time when GS had picked OUT the bad risk from their CDs–only to BET against (once they put their own CDS together on bad risk-betting AGAINST your own interest is never “insurance” it’s a BET!!
Why do this? To sabotauge other world economies–plant the risk they’d taken out-in other CDS via AIG so would not be tracked back to them as “patient zero”..bet agianst–to drive their currencies down (euro,yen…)
So yeah..I think GS has conspired with Paulsen Giahtner/Bernanke/Summers to do this–worldwide to blow up whole economies by sinking their currencies–by placing the debt/risk in their eocnomies in teh first PLACE!!!!
All to make their dollar value–which they ahve raided for countruies all over the world–and which will now be worth even more-after sinking other currencies..(or so thier thinking goes)..
Bad idea for anyone who thinks we need one currency worldwide-This is just an oligarchs-pathologic economic terrorists attempt to rape and loot the world over via their planted “risk” CDS games–which all of Treas was complicit in helping them do..
If the US wants any serious CRED with the rest of world–that they are NOT in collusion w GS on this–they can start by getting rid of every ONE of them listed above GS person-the uptick rule put back in place-50% collateral on CDS-and no fake “insurance” on bets you make against your own portfolios.. Ratings agencies-rewind and grade tranches based on individual bulk content-and not rating of person buying..As we now see–GS rigged the game on risk in these tranches–by purposely selling more-risk laden CDS to rest of world economies intentionally–to get it off their own books..
EVIL is what it is..
This is good stuff. Rock on, Yves.
The overriding point is that we have a Japanese ‘zombie bank’ policy in the face of possibly fatal asset/bond writedowns.
These guys are just putzes who shuffle paper at Zombie Bank ABC, Inc.
They should be paid no more than $50,000. Go start a small business manufacturing something if you want to make a fortune.
And stop whining. You just stole my babies’ futures, and may have succeeded in destroying the Republic we spent centuries and lives defending, you pathetic parasites.
Or as Yves more nicely put it: SHUT UP.
Happy Presidents Day.
My understanding is the banks want to make loans, but even large corporations (excess $500m revenue/annum) aren’t biting. Can’t link the article, but this would question Mr. Schwarzman’s assertion on the availability of credit:
“These uncertainties have severely hampered banking executives’ ability to plan how to run their businesses or even know what their businesses may include. Predictably, bankers are reacting to this unprecedented uncertainty by becoming conservative and cautious. The result is that there is less lending and less credit available”
Maybe the correct wording should be: “Predictably, business owners (and the general public) are becoming more cautious about committing resources under deceptive, vague or uncertain conditions”
That aside, in a deflationary environment, borrowing is not on the list of must do things, correct me if I’m wrong. Add again the current, general distrust of banks, large banks in particular (some smaller banks in my area are even capitalizing on this sentiment by mocking the biggies in their advertisements, i.e. Too Big to Trust) you have something other than the scenario Mr. Schwarzman has provided.
Hands down one of the most interesting and compelling takes on the seemingly endless BS op-eds I haven seen recently on a couple of media outlets defending the bankers/financial industry. You have to wonder just how these op-ed pieces that seem to have been sprouting up are appearing there in the 1st place.
Is it true that Steve S gets taxed at 15% because his billions in income is all declared as dividends?
You may be right, but the more common ploy in his crowd is to structure their compensation (which should be advisory income) to be treated as capital gains (and to be clear, this is separate and apart from the income they may have earned by investing along side with the other equity investors). So yes, they pay a lot less in taxes than the peons too.
Rest assured, if I am strangled by a banker then under no circumstance will the March Mortgage payment be on time.
And you can forget about the late fee, too.
One most encouraging thing is that the response to Shwarzman’s op-ed was almost universal disdain by the general readership.
There is an organized effort to convince the public that regulation is the last thing needed, and that “we are all to blame.”
Not gonna fly.
Lee S.
Let’s hope this is true.
sadly-
he probably thinks the banks did nothing wrong-
sociopaths are that way
Haven’t read comments yet, but I am sure glad Yves brought up Schwarzman as a reminder to us all that there is one helluva delayed fuse that is going to blow up in 2011-2012, namely the number of LBO’s and M&A’s that are not going to be able to refi when their loans reset 5 yrs from the peak of the LBO and M&A frenzy of 2006-2007.
Mkt observers will recall that at the height of the animal spirits M&A feeding frenzy (July 2007) the banksters alleged there was so much liquidity in the system that they could do a deal north of $100 billion without any problem. Also rumored in mid July 2007 was a Vodaphone-Verizon $160 billion merger. A few weeks later, in early August 2007, a liquidity crisis ensued and the credit markets froze up. Go figure?
Many of these M&A and LBO’s had five year terms. That means the bulk of these will have to be renegotiated with the banks in 2011-2012. The Schwarzman’s of the world will find these banks unable and/or unwilling to provide full financing when the time comes. As equity valuations of these LBOs and M&A have plunged 30-40%, the banks might, they just might be willing to refi at 60 or 70 cents on the dollar. But no more.
This unwillingness or inability to provide full financing is going to cause a lot of overlevered companies to go out of business, file bankruptcy, resulting in a whole new wave of job losses extending surely into the millions once again.
At the same time the econony is being shocked with the M&A’s blowing up in 2012, so too will be the maturations of the commercial real estate loans, which the Congressional Oversight Panel noted would be peaking from Q3 2011 to Q3 2012, noting that “a significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American. Empty offices, hotels, retail stores could lead directly to lost jobs.”
Google Yves recent “Congressional Oversight Panel Serious Pain in Commercial Real Estate Just Starting” for more details on the coming CRE crisis.
Americans are going to be frontally assaulted by crises on several fronts in 2011-2012, the job losses stemming from the M&A, LBO, and CRE defaults is going to be crushing. So too will the banksters be crushed by the overwhelming refi activity they will be responsible for stemming from their frenzy of activity in 2006-2007. The banksters plumb won’t be able to respond fully to it all, but for maybe, maybe, just maybe 60 cents on the dollar.
It is no wonder that the banks lending is contracting, and will be contracting for several more years. And it is absolutely no wonder the Basel committee and the FASB granted the banksters until 2013 to put all the toxic waste back onto their balance sheets.
Now riddle me this, which crisis do you suppose will be worse for most Americans, the one that hit us in 2008-09 or the one that is going to assault us in 2011-2012? I have always feared the aftershock will be far worse than the crisis we just went through. I consider it a fire drill for what is coming. And what is coming is best said by the Outlaw Josie Wales “Get Ready Little Lady. Hell is Coming to Breakfast!
Oh, and one other thing about the 2011-2012 crisis coming to America, and the rest of the world, interest rates on US treasuries should be revisiting the super low yield seen in 2008-09. Yes, the ten year treasury can yield only 2% again, the only ingredients required of it is to rinse and repeat the crisis we just underwent when the next wave of loans mature and reset in the CRE, M&A, and LBOs reset in 2011-2012.
Excellent article. This is the most informative finance blog on the net.
Vinny
It’s my nature to be forgetful, there is one other thing. And I will pile onto Yves remark that Schwartzman could not be further from the mark or disingenuous than he was when he stated:
“To single out banks for blame is dangerous to the economy. If, as a result of this anger, credit becomes unavailable, particularly for small and mid-size businesses, in the amounts needed to fuel economic growth and job creation, then at best the economy will slow and, at worst, we will find ourselves in a dire situation, to which we all will have contributed.”
To that I would add, stiff hot mug of “shut the F up.”
The economy is about to begin blowing up again in 2011-2012 regardless of public anger precisely because those delayed fuses are going to blow it up again. It won’t be because of public anger the economy blows up again, but the egregiousness of events that preceded the economy and capital markets blowing up in 2007-09. It is already baked in the cake that they spent so much time and energy on making. (They really ought to lament over a few bars of Macarther’s Park “I don’t think I can take it…cause it took so long to bake it, and I will never have that recipe again…” good lawd!)
There will be no pointing back by revisionists by the Schwarzman’s of the world to say (post 2012) it was public anger in 2009–2011 which caused banks to make credit unavailable again. The next seizure in the credit markets is already sitting on the books, public anger or not!
We, aware this is coming, are already bracing ourselves for the next “really big show” of banks inability to lend. And it won’t be their unwillingness, it will be their inability, but it won’t have anything to do with the public anger straightjacketing the banksters.
JB you sure have your contempt blaster set to high today, alas I concur. Its like sitting front row during a very bad and long theatrical performance, with out a exit in sight.
My take is that they think along the same lines as pedophiles…
But they liked it (the victim).
My daddy/mommy did it to me so it must be ok and they told me to keep it a secret as others would not understand our love.
I just can’t help it, can’t fight the desire.
It feels too good to stop.
Skippy…pray tell Vinny.
I totally agree with Yves here, however, some of Schwarzman’s whining about government is legitimate: I was an Obama supporter, but he came in with absolutely no plan for reform–that should have been priority #1–and now it has lingered on and on and no one knows what is going to happen. A complete lack of leadership from the Executive leads to bad results—or no results– at the legislative. Had we had a systematic plan for reform a year ago, we’d be seeing clear skies ahead right now instead of another decade or worse of storms.
I never finished reading the article Yves. I can only read about so many pigs in one day. These guys should be shut down, investigated for theft by conversion and bank fraud. The idea these are the people running the economy of the US and setting themselves up to put most of the world under peonage is beginning to make me really angry. The idea the government tax model allowed them to loot under preferred tax rates is even more pissing me off. Our local looter, Tom Hicks appears to be under liquidation. Blackstone will get there, these guys will be rich and someone else will end up with the bag. Hopefully we will have treaties that allow us to get to these guys, unlike Marc Rich.
Early in the comments there was some talk about politicians and it seemed a few people wanted to downplay the role of politicians and blame bankers only. You all really need to learn more about the careers of Phil Gramm, Chris Dodd, etc. GWB came off as too dumb to be a banker buddy, but he knew what those guys wanted and they got it throughout his presidency. The politicians you elected appointed the regulators who failed. Greenspan was also completely captured by the financial system, and the media happily pretended that he was a genius throughout. Then you get into all the revolving-door appointees who were even more transparently corrupt. Everyone should read Other People’s Money, which will cure you of any belief that financial crises are just things that happen unforseeably or can be blamed solely on greedy bankers and not on their enablers elsewhere in corporate and government power roles.
The government can do whatever they want to bankers, which is why bankers work so hard to capture as many regulators as possible and get friendly people elected. Did any major bank turn down the TARP? No, because they knew it would be administered on friendly terms and they really needed the money. Bankers rail about regulation as part of their lobbying efforts, but if they really wanted to be unregulated they would run their businesses in ways much less dependent on government and turn down government aid. They don’t do so because they can get a better deal by playing ball with the government (a few million in campaign donations, some cushy jobs for former regulators, and a few former bankers lending their services to government yields billions in bailouts).