Fire aftermath ‘too distressing’ BBC
Unexpected Headline: Obama Backs Bush On Rendition Case, Secrecy Time. Jeez, so remind me why I voted for Obama, exactly? (and for the record I was not an enthusiast). Aside from not having Palin as VP, the reasons are getting thinner with every passing day.
Why Obama’s new Tarp will fail to rescue the banks Martin Wolf. The best of many good commentaries on this sorry affair.
Obama on Bank Nationalization: Too Many Banks/Republicans Paul Kedrosky. An astute observation
Some tidbits about stimulus, recovery, and the Great Depression Ed Harrison
JPMorgan Cuts Unused Credit as Banks Free Up Capital Bloomberg
Don’t believe what they say John Hempton. Hempton argues that JP Morgan persuaded Sheila Bair to confiscate WaMu and hand it to them.
Mayfair owners take their homes off the market Times Online
Buyback halts may spell more trouble for Wall St. Reuters
At the Power Lunch, the Check Is Kryptonite New York Times
Capture and the Financial Crisis: An Elephant forcing a rethink of Corruption? Governance Matters (hat tip reader Juan)
About Bailout Nation . . . Barry Ritholtz. McGraw Hill cancelled the book (and presumably is trying to get the advance back) because Barry had the temerity to say bad things about rating agencies, which of course includes McGraw Hill sub S&P. I would be livid.
Deflation or disinflation? Robert Ophèle VoxEU
Transcript of Conversation between Geithner and Volker 2/9 Bruce Krasting. Comic relief.
Antidote du jour:. From the New York Times (I cannot recall what kind reader sent me the link to this article, apologies):
33 comments
Comments are closed.
We are in the middle of a big game of brinksmanship. Until and unless there is a crisis big enough to precipitate a “Shock Doctrine” type of response then things will be left to deteriorate. If the crisis happens outside the US then we will have someone else to blame….I saw a bumper sticker today that read: “I am already against the next war.”
The clock is ticking very loudly.
How to deal with Scumbag Bankers:
http://ezinearticles.com/?Marria…iage& id=1750188
Highlight:
"Be Willing To Forgive
Do not allow a stubborn and vindictive nature to put a rift…
Ensure that you are dealing with issues as they arise…Do not constantly bring up their past mistakes. Decide to forgive and MOVE ON."
The pony is cute enough, but give me a Clydesdale or a Percheron any day. Those massive beasts are incredibly gentle and ready to help you with any task.
Seeing a pair of Belgians tug a sled of 14,500lb of sand — with no wheels — is truly inspirational. Those horses know their job, and will damn well do it better than any other animal on Earth.
A hobby farm, no matter who pulled the plough, would be a welcome escape from our modern world. As the next best thing, I’ll be camping this weekend somewhere in Pike National Forest thinking about cosmology. I hope naked capitalism’s NY readers have a destination all their own.
“In recent comments to the Financial Times, Nouriel Roubini of RGE Monitor and the Stern School of New York University estimates peak losses on US-generated assets at $3,600bn.”
I’m happy and relieved to see Roubini referenced accurately with respect. It shouldn’t be remarkable.
LeeAnne
Yes, stay close to your animals in times like these…we could only dream of having a friend like this on our side:
http://www.sfgate.com/cgi-bin/object/article?f=/c/a/2007/12/27/MNEJU4SVN.DTL&o=22
Here is a photo of my "tiger:"
http://www.topix.com/album/detail/johnson-city-tn/T944VINLJIPDCEPG
W/r to the rendition case…
Unfortunately, there are a lot of potential reasons why such a case should really, really not be handled in an open court, no matter how much the president is against the blatant disregard for human rights that caused the trial in the first place. Sometimes, the protection of state secrets is more important than one would think.
However, and this is something I find a bit troubling as well, the Obama administration could do more to distance themselves from the mess Bush left them. They could openly state something like “Well, this cannot go to an open court, because too many internals of our security system would be exposed. But for the record, we strongly disapprove of the way you were handled, and will try to make up for it in some way. Just not in a public courtroom.”
The article “Capture and the Financial Crisis: An Elephant forcing a rethink of Corruption?” is a product of the World Bank. Isn’t the World Bank a hideout for War Criminals like Robert McNamara and Paul Wolfowitz?
They probably see this as a Growth Area where they can maybe make some easy dough in the future acting as Corruption Consultants. Their business model of the last thirty years certainly has gone into the Tank. Just like the FIRE Racketeers, these guys should just be dissolved, starved of public money. Goodbye, find a real job.
As for Corruption, it is cause number one of our present crisis, across all sectors of the American Economy. And it won’t be solved by the likes of the World Bank.
For all the Trillions in damages and theft, how about some economist just coming up with a ballpark figure of how many Criminals are now running loose in the American Financial System.
Here’s is a start on that:
If $100BILLION, a piddly amount, involved criminal activity, at $1Million per crime, that would be 100,000 Criminals on the loose in the System.
100,000! So, then ask how many prosecutors, how many investigators are needed……
Then ask, what if these Criminals continue to operate……..
No one is seriously studying this because the conclusion is obvious: America is now run by Criminals. So we have all this windowdressing about GDP, employment rates, CPI, stimulus, while the real problem is not even discussed let alone addressed.
“Big Paulie” Too Funny!!!
Thank you Yves for trudging through many commentaries on the Obama-Geithner “plan” and choosing Martin Wolf’s superb commentary. He appears to get to the most persuasive argument that can be made, and has made it concisely.
We all have bail-out plan fatigue, as do you.
GIven the inaction out of Washington on this matter, the core trend of the stock market would appear to be lower still.
Yves, there seems to be more dimensions to the rendition story than meets the eye (as another commenter pointed noted.)
Browse the comments on the article for some pretty measured opinion on Michael Sherer and his ‘report.’
My understanding on the claim for secrecy is that this is an initial default position that is being taken while everyone at Justice gets up to speed. Once you withdraw your secrecy claim, you don’t get it back so until everything is sorted out, you don’t make abrupt course changes. I think that this is reasonable. If 6 months down the road, this is still happening, then I’ll be more concerned.
My understanding on the claim for secrecy is that this is an initial default position that is being taken while everyone at Justice gets up to speed.
Well, no, the DOJ is saying that as soon as the judge reads the super-duper-secret evidence, “this case can not be litigated”.
I dunno, but this kind of argument is one that should not be encouraged in the slightest, since it is completely destabilizing. (End game: just declare everything secret when it comes to cases against the government or its corporate stooges.)
My suggestion is simple: as soon as the government asserts state secrets in a move to dismiss, this should result in an automatic final judgement for the plaintiff, with, say, treble damages.
If they want something kept secret, they can _pay_ like everyone else does.
From the Harrison piece recounting Krasiel: “I believe that large increases in federal government spending that are monetized by the Fed and the banking system will result in a recovery in real economic activity. When that recovery sets in depends on how quickly the federal government increases its spending and by the magnitude of that increase. We can debate whether tax rates should be cut or federal spending should be increased. We can debate what kinds of spending should be increased. We can debate whether the federal government should increase any of its spending. But the facts of the 1930’s appear to be pretty clear – monetized increased federal government spending does result in increased real economic activity in the short run.”
Had Big Pauly been reading Krasiel?
Though personally I’m in partial agreement with some of Wolf’s analysis and with his prescription that we should “admit reality, restructure banks and, above all, slay zombie institutions at once,” he has completely missed the 3 very large elephants in the room.
First, any restructuring and slaying of zombies will start an unwinding of derivatives as counterparties back out, will create a massive withdrawals by hedge funds from the zombie about to be slain, and will severely distress the zombie’s debt and CDS’s as well as its stocks. All of these consequences—which are natural consequences and arguably should be allowed to play out in order to protect non-zombie financial players– will be billed by the media as a “run on the bank.” Politically this was deemed unacceptable following Lehman.
The second elephant in the room is the value of 401Ks. Another major tanking of the stock market, such as that between 9/15 and 11/20, is a likely consequence of slaying a large zombie; and that is also something to be avoided politically at all costs. The greater likelihood of swift recovery would be completely irrelevant. Obama is hugely popular but no President can be that popular. Only circumstances so dire that it is obvious to everyone that the cost cannot be avoided will enable Obama politically to take such as step. We might be headed to 1932 but the political wherewithal will not available until we get there.
The third elephant in the room is the effects on foreign investors. Slaying a zombie will entail costs on these investors, whose own stability is implicitly assumed. So, the UK banks, like that financial bastion RBS, and others will bear some of the financial burden. The policy is a beggar-thy-neighbor policy from Europe’s perspective. From the perspective of the Chinese, Japanese, Germans, and Saudis the policy is doubly bad, since not only do we beggar their stability, we also effectively write down their ownership interests in American companies from the “bank run”/stock collapse. Securing “credit lines” from them for deficit-financing, not to mention maintaining current “credit lines”, would prove difficult to say the least.
The best policy, as Wolf suggests, may be to slay, restructure, and re-privatize the zombies, but that policy is a politically impossible one. Even if none of the dread possibilities relating to the first two elephants would actually come to pass, the fear of them drives the political process. The bankers are, of course, delighted to exploit this dynamic. “Too big to fail” and “systemic risk” have absolutely nothing to do with the financial system or the economy, but they do have everything to do with political feasibility.
Canary in the coal mine…Woori: S. Korea's 2nd largest bank's 2014 bonds are yielding 12.73%
http://www.bloomberg.com/apps/news?pid=20601080&sid=aVgCVuj1_JIo&refer=asia
“Domino Effect
Woori’s decision “may trigger a domino effect on Asian banks’ subordinated debt,” said Brayan Lai, a credit analyst with Calyon in Hong Kong. “The problem is, it doesn’t make sense economically for Woori to call the bonds in the current market conditions, even after taking into account the step-up cost they would need to pay not to exercise the call.”
The bank will need to pay coupon that’s 406.5 basis points more than five-year U.S. government debt after March 13 for the lower Tier-2 notes, data compiled by Bloomberg show. Five-year U.S. Treasuries today yielded 1.79 percent.
The price of its $400 million notes maturing in 2014 plunged to a record low of 79.5 cents on the dollar to give a 12.73 percent yield, compared with 89.5 cents before the announcement, Royal Bank of Scotland Group Plc data show.
Rival Shinhan Bank’s $200 million of 4.5 percent subordinated notes fell to a record 80 cents on the dollar, yielding 9.8 percent compared with 7.9 percent yesterday, RBS prices show. “
D
Hempton argues that JP Morgan persuaded Sheila Bair to confiscate WaMu and hand it to them.
Talk about the bloody obvious. They paid like half-a-cent on the dollar, and that was published knowledge at the time if you were willing to do the 12 seconds of math.
Regarding Ritholtz: he’s an idiot. Bite the hand that feeds, you stop getting fed. If he can’t figure that out, his economic writing ain’t worth reading.
Re: Capture:
“As we wrote some time ago, the focus on corruption needs to move away from exclusive focus on the ‘abuse of public office’ and squarely acknowledge that corruption often involves collusion between the public and private (and at times outright capture by the private potentates). Further, corruption ought to also encompass some acts that may belegal in a strict narrow sense, but where the rules of the game and the state laws, policies, regulations and institutions have often been shaped in part by undue influence of certain vested interests for their own private benefit (and not for the benefit of the public at large).”
The continuing role of say builders and real estate forces to create the $15K deduction,plus the variety of tax benefits for real eastate debt tells the story about political corruption in the here and now. The two major political parties are way beyond fixing.
NAOMI KLEIN: WE’VE GOT TO MAKE OBAMA DO IT!
Klein’s next step is the nationalization of America’s banks. Her argument is simple: These private entities have already proved themselves failures within the market. If the banks are not viable, don’t throw money at them – nationalize. After bailouts, Klein pointed out, both Citigroup and Bank of America actually received more in federal gifts than their total market value.
The U.S. financial industry has been effectively nationalized by the bailout, but Klein said the banks are “encouraged to pretend they’re still private” because, otherwise, shareholders would lose their stakes. She posed the rhetorical question, if private banks knew how to effectively conduct business would this economic crisis exist in the first place? She also pointed out that U.S. taxpayers failed to receive even one seat on the Boards of Directors of any of the banks that have been aided by bailout funds.
Also see: NAOMI KLEIN Mania
Q: What do you make of this group of corporatists and Clinton retreads that are surrounding Obama on the economic front?
Klein: I would say it’s disappointing, but we don’t have a right to be disappointed. This is who surrounded Obama during the whole campaign. He’s been taking advice from Larry Summers and Bob Rubin and Paul Volcker all along. He opened up the circle a little bit to people like Joseph Stiglitz and Robert Reich. But to me it’s just shocking—and I know we shouldn’t be shocked—that Larry Summers is [a leading economic adviser]. And even more shocking to me—and I don’t know how to say this in a politically correct way—is that the main thing that people are objecting to is what Summers said at Harvard about women’s aptitude in science. It was an offensive thing to say, and he lost his job for it. But that, to me, is so much less of a crime than the fact that he was the main architect in Treasury for the shock therapy in Russia that impoverished sixty million people—and did a lot of harm to women. He cheer led Boris Yeltsin as he attacked the Russian parliament, dissolved democracy, and suspended the constitution.
And Summers played a key role in the shock therapy in Thailand and South Korea in 1998. So he has a dismal track record. He was standing by Clinton’s side when Clinton abolished Glass-Steagall, which is the key piece of legislation that would have prevented the financial crisis we’re in now. He fought tooth and nail alongside Alan Greenspan to prevent the derivatives industry from being regulated.
The reason I’m so upset about this is because we’re paying the price for the deliberate amnesia that so many of us signed onto during the Bush years, where we were allowed to say whatever we wanted that was critical about U.S. policy, even about the free market, if we said it all started in 2001, when Bush took office.
NAOMI KLEIN: WE’VE GOT TO MAKE OBAMA DO IT!
Klein’s next step is the nationalization of America’s banks. Her argument is simple: These private entities have already proved themselves failures within the market. If the banks are not viable, don’t throw money at them – nationalize. After bailouts, Klein pointed out, both Citigroup and Bank of America actually received more in federal gifts than their total market value.
The U.S. financial industry has been effectively nationalized by the bailout, but Klein said the banks are “encouraged to pretend they’re still private” because, otherwise, shareholders would lose their stakes. She posed the rhetorical question, if private banks knew how to effectively conduct business would this economic crisis exist in the first place? She also pointed out that U.S. taxpayers failed to receive even one seat on the Boards of Directors of any of the banks that have been aided by bailout funds.
Also see: NAOMI KLEIN Mania
Q: What do you make of this group of corporatists and Clinton retreads that are surrounding Obama on the economic front?
Klein: I would say it’s disappointing, but we don’t have a right to be disappointed. This is who surrounded Obama during the whole campaign. He’s been taking advice from Larry Summers and Bob Rubin and Paul Volcker all along. He opened up the circle a little bit to people like Joseph Stiglitz and Robert Reich. But to me it’s just shocking—and I know we shouldn’t be shocked—that Larry Summers is [a leading economic adviser]. And even more shocking to me—and I don’t know how to say this in a politically correct way—is that the main thing that people are objecting to is what Summers said at Harvard about women’s aptitude in science. It was an offensive thing to say, and he lost his job for it. But that, to me, is so much less of a crime than the fact that he was the main architect in Treasury for the shock therapy in Russia that impoverished sixty million people—and did a lot of harm to women. He cheer led Boris Yeltsin as he attacked the Russian parliament, dissolved democracy, and suspended the constitution.
And Summers played a key role in the shock therapy in Thailand and South Korea in 1998. So he has a dismal track record. He was standing by Clinton’s side when Clinton abolished Glass-Steagall, which is the key piece of legislation that would have prevented the financial crisis we’re in now. He fought tooth and nail alongside Alan Greenspan to prevent the derivatives industry from being regulated.
The reason I’m so upset about this is because we’re paying the price for the deliberate amnesia that so many of us signed onto during the Bush years, where we were allowed to say whatever we wanted that was critical about U.S. policy, even about the free market, if we said it all started in 2001, when Bush took office.
Doc,
Excellent points. I hope that the voters, mores than the media, would at least discuss your general comments.
Yves, note carefully Obama has surrounded himself with old-guard politicians still aggressively promoting 40+ year-old doctrines.
The kind of change many are looking for was left to the voter’s imagination.
re:re: capture:
“Recently, reviewing lobbying disclosure reports, the Washington Times discovered “that 18 of the top 20 recipients of federal bailout money spent a combined $12.2 million lobbying the White House, the Treasury Department, Congress, and federal agencies during the last quarter of 2008.” Citibank alone, according to the New York Times, fielded “an army of Washington lobbyists,” plunking down $1.77 million in lobbying fees just in the fourth quarter of last year.”
John,
I beg to differ.
First, in any unwind, the government has a lot of options re the CDS. Many (Chris Whalen being the one of the most forceful) has suggested means (and legal theories) by which CDS where the owner of the protection did not own the bond at the time of default has no right to collect on the contract. IF the bondholders are not forced to take losses (which is not how I’d like to see this done), it becomes like the Fannie/Freddie settlement, a mere procedural exercise. no loss on principal.
And despite all the hyperventilating about the Lehman CDS, the problem was NOT the CDS settlement but the losses to the unsecured creditors and the mess in London (the UK has far less tough rules re broker/dealer ops, so many funds who traded through there are really stuck, see John Hempton for details).
As for “let’s worry about shareholders” are you proposing we hold the economy hostage on behalf of shareholders? And you approach won’t work anyhow. You can either take out the zombie banks quickly, and you get a Sweden/Norway outcome, 2 years of GDP contraction (and the stockmarket takes a bath too) or you can have Japan, the stock market takes as hit and bounces along the bottom, with close to zero growth for a very long time. There is no way to protect shareholders, and that’s a false aim. They chose to take the risk of owning shares, which is the bottom of the corporate capital structure. Any efforts to “protect” them in the end does not save the stock market AND produces far more damage to the real economy.
I’m happy to comment that Obama is just about as clueless as all elites assumed Sarah Palin to be. Really looking forward to the next four years.
Cheers.
http://www.networkideas.org/feathm/may2006/William_K_Black.pdf
Control Fraud by William K. Black
When Fragile becomes Friable: Endemic Control Fraud as a Cause of Economic Stagnation and Collapse
http://tinyurl.com/qypvv
The Predator State (or, at least, predator financial companies)
By James K. Galbraith
"In a predatory economy, the rules imagined by the law and economics crowd don’t apply. There’s no market discipline. Predators compete not by following the rules but by breaking them. They take the business-school view of law: Rules are not designed to guide behavior but laid down to define the limits of unpunished conduct. Once one gets close to the line, stepping over it is easy. A predatory economy is criminogenic: It fosters and rewards criminal behavior.
Why don’t markets provide the discipline? Why don’t “reputation effects” secure good behavior? Economists have been slow to answer these questions, but now we have a full-blown theory in a book by my colleague William K. Black, The Best Way to Rob a Bank Is to Own One. Black was the lawyer/whistle-blower in the Savings and Loan and Keating Five scandals; he later took a degree in criminology. His theory of “control fraud” addresses the situation in which the leader of an organization uses his company as a “weapon” of fraud and a “shield” against prosecution—a situation with which law and economics cannot cope.
For instance, law and economics argues that top accounting firms will protect their own reputations by ferreting out fraud in their clients. But, as with Enron, Tyco, and WorldCom, at every major S&L control fraud was protected by clean audits from top accountants: You hire the top firm to get the clean opinion. Moral hazard theory shifts the blame for financial collapse to the incentives implicit in insurance, but Black shows that the large frauds were nearly all committed in institutions taken over for that purpose by criminal networks, often by big players like Charles Keating, Michael Milken, and Don Dixon. And there’s another thing about predatory institutions. They invariably fail in the end. They fail because they are meant to fail [meant to fail or do they think they can do it and manage not to fail?]. Predators suck the life from the businesses they command, concealing the fact for as long as possible behind fraudulent accounting and hugely complex transactions; that’s the looter’s point."
not sure why yout thought obama was so much better than palin. palin had at least the advantage that she hadn’t voted for paulson/bush’s bailouts.
Congressmembers Jerrold Nadler (NY-08), Chair of the Judiciary Subcommittee on the Constitution, Civil Rights and Civil Liberties, Thomas Petri (WI-6), House Judiciary Chairman John Conyers, Jr. (MI-14), Bill Delahunt (MA-10) and Zoe Lofgren (CA-16) today reintroduced legislation that would ensure meaningful judicial determination of the state secrets privilege. The bi-partisan State Secret Protection Act of 2009 would curb abuse of the privilege while providing protection for valid state secrets.
“The Administration’s decision this week to adopt its predecessor’s argument that the state secret privilege requires the outright dismissal of a case challenging rendition to torture was a step in the wrong direction and a reminder that legislation is required to ensure meaningful review of the state secret privilege,” said Rep. Nadler. “This important bill recognizes that protecting sensitive information is an important responsibility for any administration and requires that courts protect legitimate state secrets while preventing the premature and sweeping dismissal of entire cases. The right to have one’s day in court is fundamental to protecting basic civil liberties and it must not be sacrificed to overbroad claims of secrecy.”
Rep. Petri commented, “Imagine the government locks you up but says you can’t see the evidence for reasons of national security. I’m sure there are cases where national security is truly at risk, and that information must be protected. But we shouldn’t have to simply take the executive branch’s word for it. Shouldn’t an independent, responsible party apart from the executive branch review the material to determine when and how national security really necessitates restricting the use of sensitive material? The answer is, quite obviously, yes. We have a procedure for criminal cases, and we need one for civil cases as well.”
“National security and the search for justice are not mutually exclusive,” said Rep. Zoe Lofgren. “By allowing a neutral arbiter to evaluate assertions of the state secret privilege with appropriate safeguards to protect national security information, the State Secret Protection Act strikes the appropriate balance between protecting our national security and protecting the rights of citizens.”
Anonymous – February 11, 2009 10:47 AM said:
Regarding Ritholtz: he’s an idiot. Bite the hand that feeds, you stop getting fed. If he can’t figure that out, his economic writing ain’t worth reading.
———
I agree it’s probably naive and wishful on the part of Ritholtz’s to believe he can impugn the reputation of the very organization that publishes him.
But to imply that makes him an idiot, and that his book is by extension worthless, is an unfair distortion. Given the extreme vertical integration of modern publishing, and the broad indictment his book is likely to be, he’d have a difficult time NOT insulting some corporate entity or another that wasn’t connected to ANY major publisher.
This massive consolidation makes for an extremely effective and frankly frightening prior restraint on free speech through any major media outlet. This author is likely to be “privished”.
The problem is NOT that Ritholtz should be aware of the “obvious” limits of corporate free speech. The problem is that there ARE such limits, and they are sweeping in scope.
(And if you don’t know what “privish” means, check out the book Into the Buzzsaw: Leading Journalists Expose the Myth of a Free Press)
– StewPDX
anon @7;30
It should be at least of some interest that so mainstream an institution as the World Bank has over the last years taken interest in state capture by a particular class segment.
Beginning to grasp that governments have not been/are not/cannot be autonomous but more on the order of managers can assist in understanding the full systemic nature of the world’s current condition.
aren’t all of you criticizing obama jumping to a lot of conclusions?
there might be a legitimate reason why the case will be kept private. not saying there is, but there isn’t much information to go on and people seem to be jumping to conclusions.
also the criticism of any form of stimulus really lacks substance.
i guess all you fat stupid americans voted for him because he performs miracles.
Yes, that’s it, Geithner has been captured.
Like Patty Hearst, except he hasn’t been made to assume dumb poses yet, or given a nom de guerre like Tanya. That would be awesome
“Tanya” would be silly. Taxya?