Federal Report Faults Banks on Huge Bonuses
By ERIC DASH
July 23, 2010 "New York Times" -- With the financial system on the verge of collapse in late 2008, a group of troubled banks doled out more than $2 billion in bonuses and other payments to their highest earners. Now, the federal authority on banker pay says that nearly 80 percent of that sum was unmerited.
In a report to be released on Friday, Kenneth R. Feinberg, the Obama administration’s special master for executive compensation, is expected to name 17 financial companies that made questionable payouts totaling $1.58 billion immediately after accepting billions of dollars of taxpayer aid, according to two government officials with knowledge of his findings who requested anonymity because of the sensitivity of the report.
The group includes Wall Street giants like Goldman Sachs, JPMorgan Chase and the American International Group as well as small lenders like Boston Private Financial Holdings. Mr. Feinberg’s report points to companies that he says paid eye-popping amounts or used haphazard criteria for awarding bonuses, the people with knowledge of his findings said, and he has singled out Citigroup as the biggest offender.
Even so, Mr. Feinberg has very limited power to reclaim any money. He can use his status as President Obama’s point man on pay to jawbone the companies into reimbursing the government, but he has no legal authority to claw back excessive payouts. (Editor--Of course not, Congress has been purchased by the banking lobby and will refuse to enact legislation adverse to the lobby's interests)
Mr. Feinberg’s political leverage has been weakened by the banks’ speedy repayment of their bailout funds. Eleven of the 17 companies that received criticism in the report have repaid the government with interest, so they have no outstanding obligations to reimburse.
As a result, Mr. Feinberg will merely propose that the banks voluntarily adopt a “brake provision” that would allow their boards to nullify or alter any bonus payouts or employment contracts in the event of a future financial crisis. All 17 companies have told Mr. Feinberg that they will consider adopting the provision, though none has committed to do so.
Mr. Feinberg is expected to call the payouts ill advised but not unlawful or contrary to the public interest, the people with knowledge of his report said.
On Wall Street, meanwhile, profits and pay have already rebounded. Goldman Sachs is on pace to hand out an average of $544,000 per worker in salary and bonuses, though many could earn several times that amount. JPMorgan Chase’s investment bank is on track to pay its workers, on average, about $425,000, while the average Morgan Stanley employee could collect about $260,000.
If the second half of 2010 plays out like the first half, Wall Street bonuses will be paid out at about the same level as last year and similar to 2007 levels, when the crisis had just started to unfold.
“It’s healthier than I would have ever expected a year ago,” said Alan Johnson, a longtime compensation consultant who specializes in financial services.
Mr. Feinberg was named last month as the independent administrator for claims tied to the BP oil spill, making it likely that the release of his findings on the financial firms will be his final act as the overseer of banker pay.
The review, mandated by the 2009 economic stimulus bill, broadened the scope of Mr. Feinberg’s duties to include examining the pay packages of top earners at 419 companies that accepted bailout funds. However, it did not give him the power to demand changes to the compensation arrangements, as he did in each of the last two years at seven companies that received multiple bailouts.
Mr. Feinberg spent five months reviewing compensation paid to each company’s 25 highest earners between October 2008, when the first bailouts were dispensed, and February 2009, when the stimulus bill took effect. He narrowed his scrutiny to about 600 executives at 17 banks, with payouts totaling $2.03 billion.
Mr. Feinberg’s criteria for identifying the worst offenders were large payouts, in aggregate or to specific individuals; overly generous exit packages; or a failure to provide clear performance criteria or other rationale for extra pay.
Mr. Feinberg then approached each of the 17 companies with his proposed remedy during conference calls over the last two weeks. The 11 companies that have fully repaid their bailout money are American Express, Bank of America, Bank of New York Mellon, Boston Private, Capital One Financial, Goldman Sachs, JPMorgan, Morgan Stanley, PNC Financial, US Bancorp and Wells Fargo.
The six companies that have not fully repaid their bailout funds are A.I.G, Citigroup, the CIT Group, M&T Bank, Regions Financial and SunTrust Banks.
Among the banks that have not fully repaid the government, Citigroup was identified by Mr. Feinberg as having the most egregious compensation packages during the bailout period, according to officials with knowledge of his report. The bank handed out several hundred million dollars in pay in 2008 as it struggled to stay afloat.
Roughly two-thirds of the outsize payouts were from bonuses awarded to Andrew Hall and another trader who were part of the bank’s Phibro energy trading unit. Citigroup sold that business to Occidental Petroleum last fall, under pressure from Mr. Feinberg, after the disclosure that Mr. Hall had received a $100 million payout.
Mr. Feinberg is not expected to name individual executives who received the highest awards. (Editor's bold emphasis throughout)
His review is among several compensation initiatives scrutinizing banker pay. In June, the Federal Reserve ordered about two dozen of the biggest banks to address several pay practices that, even after the crisis, it said encouraged excessive risk-taking.
European banking regulators introduced tough new standards for bonus payments earlier this month. And the Federal Deposit Insurance Corporation is developing a plan that would partly tie bank insurance premiums to the perceived risk of their executive pay packages. That proposal could be reviewed by the agency’s board as early as next month.
____________
Shadow Banking Makes A Comeback
By Mike Whitney
July 22, 2010 "Information Clearing House" -- Credit conditions are improving for speculators and bubblemakers, but they continue to worsen for households, consumers and small businesses. An article in the Wall Street Journal confirms that the Fed's efforts to revive the so-called shadow banking system is showing signs of progress. Financial intermediaries have been taking advantage of low rates and easy terms to fund corporate bonds, stocks and mortgage-backed securities. Thus, the reflating of high-risk financial assets has resumed, thanks to the Fed's crisis-engendering monetary policy and extraordinary rescue operations. Here's an excerpt from the Wall Street Journal:
"A new quarterly survey of lending by the Federal Reserve found that hedge funds and private-equity funds are getting better terms from lenders and that big banks have loosened lending standards generally in recent months. The survey, called the Senior Credit Officer Opinion Survey, focuses on wholesale credit markets, which the Fed said functioned better over the past quarter." ("Survey shows credit flows more freely", Sudeep Reddy, Wall Street Journal)
In contrast, bank lending and consumer loans continue to shrink at a rate of nearly 5% per year. According to economist John Makin, there was a "sharp drop in credit growth, to a negative 9.7 per cent annual rate over the three months ending in May." Bottom line; the real economy is being strangled while unregulated shadow banks are re-leveraging their portfolios and skimming profits. Here's more from the WSJ:
"Two-thirds of dealers said hedge funds in particular pushed harder for better rates and looser nonprice terms, and they said some of the funds got better deals as a result....(while) The funding market for key consumer loans remained under stress, with a quarter of dealers reporting that liquidity and functioning in the market had deteriorated in recent months." ("Survey shows credit flows more freely", Sudeep Reddy, Wall Street Journal)
As the policymaking arm of the nation's biggest banks, the Fed's job is to enhance the profit-generating activities of its constituents. That's why Fed chair Ben Bernanke has worked tirelessly to restore the crisis-prone shadow banking system. As inequality grows and the depression deepens for working people, securitization and derivatives offer a viable way to increase earnings and drive up shares for financial institutions. The banks continue to post record profits even while the underlying economy is gripped by stagnation.
Central bank monetary policy is largely responsible for the worst financial crisis since the Great Depression. Low interest rates and an unwillingness to reign in over-leveraged banks and non-banks triggered a run on the shadow system that left many depository institutions insolvent. Eventually, the Fed was able to stop the bleeding by providing trillions of dollars in emergency relief and by issuing blanket government guarantees on complex bonds and securities that are currently worth roughly half of their original value. The Fed is now reconstructing this same system without any meaningful changes. The upward transfer of wealth continues as before.
The Federal Reserve Bank of New York's own report confirms that securitization and massive leveraging contributes to systemic instability. Here's an excerpt from the FRBNY's "The Shadow Banking System: Implications for Financial Regulation":
"The current financial crisis has highlighted the growing importance of the “shadow banking system,” which grew out of the securitization of assets and the integration of banking with capital market developments. This trend has been most pronounced in the United States, but it has had a profound influence on the global financial system.....Securitization was intended as a way to transfer credit risk to those better able to absorb losses, but instead it increased the fragility of the entire financial system by allowing banks and other intermediaries to “leverage up” by buying one another’s securities." ("The Shadow Banking System: Implications for Financial Regulation", Tobias Adrian and Hyun Song Shin, Federal Reserve Bank of New York)
The former President of FRBNY, William Dudley, made similar comments in a recent speech. He said, "This crisis was caused by the rapid growth of the so-called shadow banking system over the past few decades and its remarkable collapse over the past two years.”
The system can be fixed by imposing capital and liquidity requirements on shadow banks and by maintaining strict underwriting standards on loans. Regulators need additional powers to check-up on institutions which presently operate outside their purview. Any institution that poses a risk to the rest of the system must be regulated by the state. Unfortunately, the Fed opposes such changes because they threaten the profit-margins of its constituents. The Fed is paving the way for another catastrophe.
Securitization creates strong incentives for fraud. Prior to the Lehman Bros. default, structured securities, like bundled loans, were in great demand because investors were looking for Triple-A bonds with higher yields than US Treasuries and CDs. Bogus ratings convinced investors that mortgage-backed securities, asset-backed securities, and collateralized debt obligations were "risk free" when, in fact, many of the loans were made to applicants who had no ability to repay their debts. As foreclosures soared, financial intermediaries demanded more collateral for the short-term loans which provided funding for the banks. That pushed asset prices down and slowed liquidity to a trickle. When the wholesale credit markets crashed, panicky investors ran for the exits. The meltdown in subprime was the spark that set the shadow system ablaze.
Even so, Bernanke has fought all attempts to strengthen regulations, raise capital requirements, or tighten lending standards. Thus, the pieces of the shadow system have been reassembled with no fundamental change. Now it appears that the Fed's bubblemaking efforts are starting to pay off. Here's a clip from an article in the Wall Street Journal which clarifies the point:
"Even as lenders struggle to pull themselves out of the credit crisis, signs of a new and potentially dangerous infatuation with risky borrowers are emerging. From credit cards to auto loans to mortgages, the hunger for new business as the crisis ebbs is causing some financial institutions to weaken lending standards and woo borrowers who mightn't be able to pay.....
Credit-card issuers mailed 84.8 million offers of plastic to U.S. subprime borrowers in the first six months of this year...Fannie Mae, seized by the U.S. government in 2008 to avert the mortgage company's failure, launched an initiative in January that allows some first-time home buyers to get a loan with a down payment of as little as $1,000....The thawing securitization market for auto loans is helping AmeriCredit increase its loan staff and dealer network...Kathleen Day, a spokeswoman for the Center for Responsible Lending, said the consumer group is "seeing banks re-enter the subprime market at a steady clip and make loans to borrowers who don't have the ability to repay.
There is no doubt that the credit supply still is tight....But some lenders are starting to take more chances on consumer loans. Many financial institutions that survived the credit crisis and resulting recession are desperate for earnings growth." ("Signs of Risky Lending Emerge" Ruth Simon, Wall Street Journal)
Financial system instability is no accident. It's Central Bank policy. As financial institutions discover they can no longer count on organic growth in the real economy to increase profits, (because consumers are too strapped to spend freely) they will rely more heavily on dodgy accounting, bogus ratings, opaque debt-instruments, high-frequency trading and lax lending standards. This is the shadowy regime that Bernanke is trying so hard to rebuild. The Fed is laying the groundwork for another disaster.
Showing posts with label Bank Bailout. Show all posts
Showing posts with label Bank Bailout. Show all posts
Monday, July 26, 2010
Wednesday, July 14, 2010
Dylan Ratigan: "The Financial Industry is Stealing America's Money"
Dylan Ratigan Rips GOP Congressman Kevin Brady Over Wall Street Greed
First Posted: 07-13-10 08:02 PM | Updated: 07-13-10 08:03 PM
Huffington Post
Rep. Kevin Brady (R-Texas) looked uncomfortable when MSNBC host Dylan Ratigan introduced him Tuesday afternoon to talk about unemployment benefits and Wall Street greed. Brady's discomfort proved well-founded.
Ratigan tore into the Texas Republican, who voted against the extension of unemployment benefits but for the Wall Street bailout known as the Troubled Asset Relief Program. Brady repeatedly attempted to deflect Ratigan's harsh line of questioning on the nature of Wall Street by arguing that potential -- not actual -- tax increases are stifling capital investment and thus job creation, but the MSNBC host didn't let up.
"I know you have an issue with the government, but I've got an issue with a private industry that's using the government to rape my country of its money, and I'd like to try to put a stop to that," Ratigan said.
"We are facing higher taxes in energy and income and capital and dividends," Brady argued, not for the last time. "All those tax proposals are what's keeping our recovery from gaining steam--"
"That's a lie. That's a lie," Ratigan shot back. "What's keeping our recovery from gaining steam is the fact that the financial industry is stealing America's money, depriving this country of any investment whatsoever, and that is the entire basis of our system, and the government has converted it from an investment vehicle into a vehicle for it to steal money for its rich friends."
The MSNBC host ended the segment on a frustrated note, complaining that Brady simply retreated to his talking points. "I'm done with you," Ratigan said, after he challenged Brady to answer his questions and his guest resumed talking about possible future taxes.
WATCH:
First Posted: 07-13-10 08:02 PM | Updated: 07-13-10 08:03 PM
Huffington Post
Rep. Kevin Brady (R-Texas) looked uncomfortable when MSNBC host Dylan Ratigan introduced him Tuesday afternoon to talk about unemployment benefits and Wall Street greed. Brady's discomfort proved well-founded.
Ratigan tore into the Texas Republican, who voted against the extension of unemployment benefits but for the Wall Street bailout known as the Troubled Asset Relief Program. Brady repeatedly attempted to deflect Ratigan's harsh line of questioning on the nature of Wall Street by arguing that potential -- not actual -- tax increases are stifling capital investment and thus job creation, but the MSNBC host didn't let up.
"I know you have an issue with the government, but I've got an issue with a private industry that's using the government to rape my country of its money, and I'd like to try to put a stop to that," Ratigan said.
"We are facing higher taxes in energy and income and capital and dividends," Brady argued, not for the last time. "All those tax proposals are what's keeping our recovery from gaining steam--"
"That's a lie. That's a lie," Ratigan shot back. "What's keeping our recovery from gaining steam is the fact that the financial industry is stealing America's money, depriving this country of any investment whatsoever, and that is the entire basis of our system, and the government has converted it from an investment vehicle into a vehicle for it to steal money for its rich friends."
The MSNBC host ended the segment on a frustrated note, complaining that Brady simply retreated to his talking points. "I'm done with you," Ratigan said, after he challenged Brady to answer his questions and his guest resumed talking about possible future taxes.
WATCH:
Visit msnbc.com for breaking news, world news, and news about the economy
Monday, July 13, 2009
The More Things "Change"...
By Tim Gatto
July 12, 2009 -- -Information Clearing House--Every one of us has their own “take” on what is happening in this brave new world. I am no different than most, I also have an opinion on what’s going on. When I write an article I usually have no problem giving my opinion as to what is really happening. This time however, I’m going to try not to give my opinion. I only want to present the facts as I understand them. The truth is much more damning than any opinion I could offer, as Sgt Joe Friday once said in Dragnet, an old TV police show; “Just the facts Ma’am, just the facts”.
Let’s start with the two political parties that supposedly “run” this country. The truth is that political parties don’t run this country, money does. Our entire political system is based on wealth. This has been true in some degree since the day we gained our independence, but it has never been as apparent as it is now. Money drives political campaigns. All the politicos know this and so do most people. Senators Russ Feingold and John McCain tried to reform the way that political campaigns were financed, but by the time the reforms were passed by Congress, the politicians and lobbyists had gutted the bill, making it so weak that it was too little, too late.
We, the people, are supposedly equal under the law, and we are, except that some are more equal than others depending on their net worth and how their money is used. During the last presidential election, money coming from “ordinary folks” in a “populist surge of donations” put Barack Obama over the top and they supposedly carried the day.
It never happened.
What really happened is that the people who controlled the financial sector of the economy saw a massive train wreck about to happen and they needed someone malleable and ambitious enough to work with them to clean up the mess that would follow. At that time, A junior Senator from Illinois with his golden tongue a good understanding of quid pro quid, stepped into the batter’s box. The financial sector then showered him with campaign funds in order to minimize the catastrophe that was, beyond a shadow of doubt, going to happen. The truth was that everyone in government, and those working in the financial sector, knew that the only recourse available to prevent a financial meltdown, was for the Federal Government to bail out the bankers, the stock exchange, the real estate market and the hedge fund people, mortgage lenders and the manufacturing base (Automobile manufacturers and the defense industry).
Let’s take a look at campaign financing. Obama raised $745 million, McCain raised $368 million.
Finance, Insurance & Real Estate: $130,634,154 Total. Democrats $69,987,307 GOP: $60,525,764
Total Individuals PAC’S To Democrats To Republicans
2008 $468,809,924 $396,331,007 $72,478,917 $238,597, 503 $229,267,201
Securities and Investments
Total Individuals PAC’S To Dems To Republicans
2008 $154,918,793 $143,495,995 $11,422,798 $87,965,961 $66,736,485
When it comes to influence, the average American has very little. It’s amazing when you consider how the political parties package their candidates. They use the oldest trick in the book to win elections. Divide and conquer. Left, right, rich poor, black, white, legal, illegal, it’s all a ruse.
The hot-button issues still resonate; abortion, gay and lesbian, health care, education and taxes and the all-important “national security” as if Venezuela were to suddenly invade the Gulf of Mexico with help from Bolivia.
Our lawmakers have broken the backs of the Unions. They pass agricultural laws that drive independent farmers out of business because the costs of doing business have become astronomical. Meanwhile fear-mongers and ideologues such as Rush Limbaugh claim that Obama is practicing some new variation of “socialism” that has allowed corporations to return to the era of monopolies. Standard Oil, AT&T and big Pharmaceutical companies merged with their competitors and drove smaller operations out of business.
Our nation is continuously at war. The War on Drugs, the War on Crime, the War on Terrorism and the War on Climate Change challenge our resources so that we now fight wars for these resources. We celebrate our freedom while our phones are being tapped, our e-mails read and collected, our computer keystrokes are recorded and plans for an RFID chip in a National ID card are being planned.
These are not right or left issues or liberal/conservative issues. Until 2008 the Republicans spent money like drunken sailors on liberty, now the Democrats find themselves buying American auto manufacturers and controlling interests in banks and insurance companies. We buy American dollars from the Rothschild’s and the Mellon’s and the Rockefellers at interest through private banker that have the audacity to call themselves “The Federal Reserve” We cannot print our own national currency; this was a primary reason we fought to free ourselves from Great Britain. Our money comes pre-packaged with debt attached.
Congress denies legislation for Americans so that they may stay in their homes while authorizing 80 million in additional funds so that we can continue to send unmanned drones into Pakistan to bring death from the sky blasting suspected Taliban forces that turn out to be wedding parties and picnics.
Our “Shining City on a Hill” has caused more than one million dead Iraqi’s and over four million refugees. Our thousand points of light are actually depleted uranium projectiles that emit alpha radiation that bring death in the form of fission and birth defects to Iraqi children Along ken strands of DNA in our soldiers that bring deformities to American children. A thousand points of light in the form of white phosphorus that when burning, doesn’t stop until it has burned through flesh and bone until it lands on dirt.
We watch as American and NATO troops take the Helmand Provence in Southern Afghanistan that will be used for the all important oil pipeline that was planned by UnoCal years ago when President Karzai, the Afghan leader worked for the American oil company. Now we have permission the fly over Russia to resupply Afghanistan with soldiers and instruments of war while the Russians sit back and watch our people die.
The American people are slowly realizing that we have traded one war-monger for another. Once we were in Afghanistan to fight al Qaeda, now we are trying to kill the Taliban. In reality we are killing anyone that stops us from building that oil pipeline.
Almost a decade ago we saw a candidate tout “compassionate conservatism”. Nothing was further from the truth. Now we have a President that speaks of “change”. The only change I see is a different battlefield for people to die.
July 12, 2009 -- -Information Clearing House--Every one of us has their own “take” on what is happening in this brave new world. I am no different than most, I also have an opinion on what’s going on. When I write an article I usually have no problem giving my opinion as to what is really happening. This time however, I’m going to try not to give my opinion. I only want to present the facts as I understand them. The truth is much more damning than any opinion I could offer, as Sgt Joe Friday once said in Dragnet, an old TV police show; “Just the facts Ma’am, just the facts”.
Let’s start with the two political parties that supposedly “run” this country. The truth is that political parties don’t run this country, money does. Our entire political system is based on wealth. This has been true in some degree since the day we gained our independence, but it has never been as apparent as it is now. Money drives political campaigns. All the politicos know this and so do most people. Senators Russ Feingold and John McCain tried to reform the way that political campaigns were financed, but by the time the reforms were passed by Congress, the politicians and lobbyists had gutted the bill, making it so weak that it was too little, too late.
We, the people, are supposedly equal under the law, and we are, except that some are more equal than others depending on their net worth and how their money is used. During the last presidential election, money coming from “ordinary folks” in a “populist surge of donations” put Barack Obama over the top and they supposedly carried the day.
It never happened.
What really happened is that the people who controlled the financial sector of the economy saw a massive train wreck about to happen and they needed someone malleable and ambitious enough to work with them to clean up the mess that would follow. At that time, A junior Senator from Illinois with his golden tongue a good understanding of quid pro quid, stepped into the batter’s box. The financial sector then showered him with campaign funds in order to minimize the catastrophe that was, beyond a shadow of doubt, going to happen. The truth was that everyone in government, and those working in the financial sector, knew that the only recourse available to prevent a financial meltdown, was for the Federal Government to bail out the bankers, the stock exchange, the real estate market and the hedge fund people, mortgage lenders and the manufacturing base (Automobile manufacturers and the defense industry).
Let’s take a look at campaign financing. Obama raised $745 million, McCain raised $368 million.
Finance, Insurance & Real Estate: $130,634,154 Total. Democrats $69,987,307 GOP: $60,525,764
Total Individuals PAC’S To Democrats To Republicans
2008 $468,809,924 $396,331,007 $72,478,917 $238,597, 503 $229,267,201
Securities and Investments
Total Individuals PAC’S To Dems To Republicans
2008 $154,918,793 $143,495,995 $11,422,798 $87,965,961 $66,736,485
When it comes to influence, the average American has very little. It’s amazing when you consider how the political parties package their candidates. They use the oldest trick in the book to win elections. Divide and conquer. Left, right, rich poor, black, white, legal, illegal, it’s all a ruse.
The hot-button issues still resonate; abortion, gay and lesbian, health care, education and taxes and the all-important “national security” as if Venezuela were to suddenly invade the Gulf of Mexico with help from Bolivia.
Our lawmakers have broken the backs of the Unions. They pass agricultural laws that drive independent farmers out of business because the costs of doing business have become astronomical. Meanwhile fear-mongers and ideologues such as Rush Limbaugh claim that Obama is practicing some new variation of “socialism” that has allowed corporations to return to the era of monopolies. Standard Oil, AT&T and big Pharmaceutical companies merged with their competitors and drove smaller operations out of business.
Our nation is continuously at war. The War on Drugs, the War on Crime, the War on Terrorism and the War on Climate Change challenge our resources so that we now fight wars for these resources. We celebrate our freedom while our phones are being tapped, our e-mails read and collected, our computer keystrokes are recorded and plans for an RFID chip in a National ID card are being planned.
These are not right or left issues or liberal/conservative issues. Until 2008 the Republicans spent money like drunken sailors on liberty, now the Democrats find themselves buying American auto manufacturers and controlling interests in banks and insurance companies. We buy American dollars from the Rothschild’s and the Mellon’s and the Rockefellers at interest through private banker that have the audacity to call themselves “The Federal Reserve” We cannot print our own national currency; this was a primary reason we fought to free ourselves from Great Britain. Our money comes pre-packaged with debt attached.
Congress denies legislation for Americans so that they may stay in their homes while authorizing 80 million in additional funds so that we can continue to send unmanned drones into Pakistan to bring death from the sky blasting suspected Taliban forces that turn out to be wedding parties and picnics.
Our “Shining City on a Hill” has caused more than one million dead Iraqi’s and over four million refugees. Our thousand points of light are actually depleted uranium projectiles that emit alpha radiation that bring death in the form of fission and birth defects to Iraqi children Along ken strands of DNA in our soldiers that bring deformities to American children. A thousand points of light in the form of white phosphorus that when burning, doesn’t stop until it has burned through flesh and bone until it lands on dirt.
We watch as American and NATO troops take the Helmand Provence in Southern Afghanistan that will be used for the all important oil pipeline that was planned by UnoCal years ago when President Karzai, the Afghan leader worked for the American oil company. Now we have permission the fly over Russia to resupply Afghanistan with soldiers and instruments of war while the Russians sit back and watch our people die.
The American people are slowly realizing that we have traded one war-monger for another. Once we were in Afghanistan to fight al Qaeda, now we are trying to kill the Taliban. In reality we are killing anyone that stops us from building that oil pipeline.
Almost a decade ago we saw a candidate tout “compassionate conservatism”. Nothing was further from the truth. Now we have a President that speaks of “change”. The only change I see is a different battlefield for people to die.
Saturday, July 4, 2009
Banks Own The US Government
There are smart ways to raise money and regulate the market, but Wall Street is working to kill any meaningful financial reform
By Dean Baker
July 01, 2009 "The Guardian" -- Last month, when the US Congress failed to pass a bankruptcy reform measure that would have allowed home mortgages to be modified in bankruptcy, senator Dick Durbin succinctly commented: "The banks own the place." That seems pretty clear.
After all, it was the banks' greed that fed the housing bubble with loony loans that were guaranteed to go bad. Of course the finance guys also made a fortune guaranteeing the loans that were guaranteed to go bad (ie AIG), and when everything went bust, the taxpayers got handed the bill. The cost of the bailout will certainly be in the hundreds of billions, if not more than $1tn when it is all over.
More importantly, we are looking at the most severe economic downturn since the Great Depression. The cumulative lost output over the years 2008-2012 will almost certainly exceed $5tn. That comes to more than $60,000 for an average family of four. This is the price that we are paying for the bankers' greed, coupled with incredible incompetence and/or corruption from our regulators.
Under these circumstances, it would be reasonable to think that the bankers would be keeping a low profile for a while. That's not the way it works in Washington. The banks are aggressively pushing their case in Congress and Obama administration. Not only are we not going to see bankruptcy reform, but any financial reform package that gets through Congress will probably contain enough loopholes that it will be almost useless.
In this political environment, the poor might get empathy, but Wall Street gets money, and lots of it. Even when the issue is global warming Wall Street has its hand out. The fees on trading carbon permits could run into the hundreds of billions of dollars in coming decades. A simple carbon tax would have been far more efficient, but efficiency is not the most important value when it comes to making Wall Street richer.
This is why it was so encouraging to see congressman Peter DeFazio's proposal to tax trades in oil options and futures. DeFazio proposed a tax of 0.02% on trades in oil futures and options as a way to make up a shortfall in the federal government's highway trust fund. This tax could raise billions of dollars each year in revenue and make speculation in the oil market a more dangerous affair.
The logic is very simple. For someone using these markets to hedge, the tax will be inconsequential. For example, a farmer that hedges a $400,000 wheat crop will pay $80 when selling a future. Similarly, airlines that hedge by buying oil futures will barely notice the higher cost. In fact, because trading costs have fallen so much in recent decades, a tax at this level would just be raising costs back to their levels of two decades ago, a point at which there was already a very vibrant futures and options market.
However, even a modest tax will make life much more difficult for speculators. Many of them expect to make quick short-term gains, often buying and selling the same day. For these traders, an increase in transactions costs of 0.02% would be a burden.
Of course, a modest tax will not drive the speculators out of the market altogether, it is just likely to reduce the volume of speculation. For this reason, even a modest tax can still raise an enormous amount of money in a market where tens of trillions of dollars of derivatives changes hands each year.
This tax can best be thought of as a tax on gambling. Gambling is heavily taxed in every state that allows it. DeFazio's bill is effectively a tax on gambling in the oil markets. It will not stop it, but it would discourage it, and in the process raise a huge amount of money that could go to productive purposes.
The bill faces an enormous uphill struggle in Congress. As Durbin said, the banks own the place, and they are not going to just step aside and let Congress impose a tax on such a lucrative business. But, it is important that people know about the DeFazio bill. First, DeFazio deserves a place on the honour roll for standing up to Wall Street.
Also, it is important for the public to know that there is a relatively low-cost way to make up the shortfall in the highway trust fund. When Congress raises some other tax and/or cuts a useful programme, people should know that there was a better alternative. It just didn't happen because, as we know, the banks own the place.
By Dean Baker
July 01, 2009 "The Guardian" -- Last month, when the US Congress failed to pass a bankruptcy reform measure that would have allowed home mortgages to be modified in bankruptcy, senator Dick Durbin succinctly commented: "The banks own the place." That seems pretty clear.
After all, it was the banks' greed that fed the housing bubble with loony loans that were guaranteed to go bad. Of course the finance guys also made a fortune guaranteeing the loans that were guaranteed to go bad (ie AIG), and when everything went bust, the taxpayers got handed the bill. The cost of the bailout will certainly be in the hundreds of billions, if not more than $1tn when it is all over.
More importantly, we are looking at the most severe economic downturn since the Great Depression. The cumulative lost output over the years 2008-2012 will almost certainly exceed $5tn. That comes to more than $60,000 for an average family of four. This is the price that we are paying for the bankers' greed, coupled with incredible incompetence and/or corruption from our regulators.
Under these circumstances, it would be reasonable to think that the bankers would be keeping a low profile for a while. That's not the way it works in Washington. The banks are aggressively pushing their case in Congress and Obama administration. Not only are we not going to see bankruptcy reform, but any financial reform package that gets through Congress will probably contain enough loopholes that it will be almost useless.
In this political environment, the poor might get empathy, but Wall Street gets money, and lots of it. Even when the issue is global warming Wall Street has its hand out. The fees on trading carbon permits could run into the hundreds of billions of dollars in coming decades. A simple carbon tax would have been far more efficient, but efficiency is not the most important value when it comes to making Wall Street richer.
This is why it was so encouraging to see congressman Peter DeFazio's proposal to tax trades in oil options and futures. DeFazio proposed a tax of 0.02% on trades in oil futures and options as a way to make up a shortfall in the federal government's highway trust fund. This tax could raise billions of dollars each year in revenue and make speculation in the oil market a more dangerous affair.
The logic is very simple. For someone using these markets to hedge, the tax will be inconsequential. For example, a farmer that hedges a $400,000 wheat crop will pay $80 when selling a future. Similarly, airlines that hedge by buying oil futures will barely notice the higher cost. In fact, because trading costs have fallen so much in recent decades, a tax at this level would just be raising costs back to their levels of two decades ago, a point at which there was already a very vibrant futures and options market.
However, even a modest tax will make life much more difficult for speculators. Many of them expect to make quick short-term gains, often buying and selling the same day. For these traders, an increase in transactions costs of 0.02% would be a burden.
Of course, a modest tax will not drive the speculators out of the market altogether, it is just likely to reduce the volume of speculation. For this reason, even a modest tax can still raise an enormous amount of money in a market where tens of trillions of dollars of derivatives changes hands each year.
This tax can best be thought of as a tax on gambling. Gambling is heavily taxed in every state that allows it. DeFazio's bill is effectively a tax on gambling in the oil markets. It will not stop it, but it would discourage it, and in the process raise a huge amount of money that could go to productive purposes.
The bill faces an enormous uphill struggle in Congress. As Durbin said, the banks own the place, and they are not going to just step aside and let Congress impose a tax on such a lucrative business. But, it is important that people know about the DeFazio bill. First, DeFazio deserves a place on the honour roll for standing up to Wall Street.
Also, it is important for the public to know that there is a relatively low-cost way to make up the shortfall in the highway trust fund. When Congress raises some other tax and/or cuts a useful programme, people should know that there was a better alternative. It just didn't happen because, as we know, the banks own the place.
Sunday, February 15, 2009
The Oligarchy's Bailout Ball
You know what they say -- half a million dollars just doesn't go as far as it used to
By Michael Winship
February 14, 2009 "Consortiumnews " -- -- News from the White House that $500,000 was the cap the government wants to put on executive salaries at the banks receiving bailout cash had some on Wall Street and along the plush corridors of Manhattan's swank Upper East Side hollering "Unfair!" (But without those unsightly street demonstrations and picket lines, of course.)
"You Try to Live on 500K in This Town" was the tongue-in-cheek headline in last Sunday's New York Times.
Just add up private school tuition, mortgage payments, maintenance fees and wages for the nanny and you're already up to more than $250,000 a year - and that's pre-taxes, assuming you're paying any. Then tote up payments and upkeep on vacation and weekend homes, charity balls, car and driver - pretty soon you're maxing out your American Express Black Card.
But they work hard for their multi-million dollar salaries and bonuses, perks and solid gold benefits, complained some of the financiers. Besides, executive headhunters say, the money giants just can't get good help for anything less.
Good help? Spare us the kind of moguls who helped us straight into the current deep, dirty hole we're trying to climb out of.
"Like spoiled, petulant children," is how Washington Post columnist Steven Pearlstein described them. "These guys won't be happy until the government agrees to relieve them of every last one of their lousy loans and investments at inflated prices, recapitalize every major bank and brokerage and insurance company on sweetheart terms and restore them to the glory days, so they can once again earn inflated profits and obscene pay packages by screwing over their customers and their shareholders."
Pearlstein was reacting after the five percent dive that stock prices took following freshly minted Treasury Secretary Timothy Geithner's announcement of the Obama Administration's Financial Stability Plan. It's the latest iteration of the bank bailout plan intended to go hand-in-hand with the economic stimulus package. Combined, as much as $3 trillion may be at stake.
The plan immediately was attacked by many as too vague and ineffective. Part of the trouble, critics say, is that Geithner isn't part of the solution, he's part of the problem -- former head of the Federal Reserve in New York and a protégé of Clinton Treasury Secretary Robert Rubin, who last month retired as senior counselor at Citigroup.
That's the bank the government agreed to insure against projected losses of $306 billion, on top of bailouts totaling $45 billion. In other words, Geithner's a player.
The New York Times reported that in preparing the Financial Stability Plan, Geithner opposed tougher conditions on investment firms sought by others in the White House.
Geithner, the Times wrote, "successfully fought against more severe limits on executive pay for companies receiving government aid... resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives..."
This week, on The Baseline Scenario, a blog he co-founded, MIT professor of global economics and management and former International Monetary Fund chief economist Simon Johnson wrote, "There comes a time in every economic crisis, or more specifically, in every struggle to recover from a crisis, when someone steps up to the podium to promise the policies that -- they say -- will deliver you back to growth.
“The person has political support, a strong track record, and every incentive to enter the history books. But one nagging question remains. Can this person, your new economic strategist, really break with the vested elites that got you into this much trouble?"
That question caught the attention of my colleague Bill Moyers, who interviewed Johnson on the current edition of Bill Moyers Journal on public television.
The problem, Johnson told him, is that via millions spent for political contributions and lobbying efforts, the revolving door that sees elites shuttle between jobs in government and business, and by creating a situation in which technical knowledge is limited to a privileged few, the banking and financial services industry has become a kind of ruling oligarchy that stifles attempts to shake up the status quo and make the real change necessary to get us out of the current crisis.
"Either you break the power," Johnson said, "or we're stuck for a long time with this arrangement...
"The policy that we seem to be pursuing, of being nice to the banks, is a mistake. Both from a technical/economic point of view, and from a deeper political point of view... [The banks] think that we're going to pay out 10 or 20 percent of GDP to basically make them whole. It's astonishing."
Johnson has written on The Baseline Scenario blog what he thinks needs to be done: "Reboot the financial system. Find out immediately which banks are insolvent using market prices. Allow private owners to fully recapitalize, if they can. Have the FDIC, the Federal Deposit Insurance Corporation, take over all banks that cannot raise enough private capital, and try to re-privatize those banks quickly, while making sure the taxpayer has strong participation in the upside."
Unfortunately, Johnson fears the oligarchy will prevail.
"My intuition is that this is going to get a lot worse," he told Moyers. "It's going to cost us a lot more money. And we are going down a long, dark, blind alley...
"Eventually, of course, the economy will turn around. Things will get better. The banks will be worth a lot of money and they will cash out.... We and our children will be paying higher taxes so those people could have those bonuses. That's not fair. It's not acceptable. It's not even good economics."
Johnson doubts the political will exists to do what needs to be done. (Editor's emphasis throughout)
According to Tuesday's Boston Herald, last August, another former Treasury Secretary and Rubin pal, Lawrence Summers, now chairman of the of the National Economic Council, hitched a ride back from the Democratic National Convention on board a Citigroup corporate jet -- "the same type that... Citigroup infamously wanted to replace last month with a new $50 million French jet."
Summers didn't pay for the trip, but Citi said it has paid the appropriate taxes. The Herald reported that the plane "was the same one former Citi chief executive Sandy Will took on vacation to Mexico last month, it reportedly includes a full bar, crystal stemware and 'pillows made from Hermès scarves.'"
When you've got it, flaunt it, Larry. Why go to hell in a handbasket when you can fly there executive class, leaning back on a French silk pillow? It's good to be part of an oligarchy.
By Michael Winship
February 14, 2009 "Consortiumnews " -- -- News from the White House that $500,000 was the cap the government wants to put on executive salaries at the banks receiving bailout cash had some on Wall Street and along the plush corridors of Manhattan's swank Upper East Side hollering "Unfair!" (But without those unsightly street demonstrations and picket lines, of course.)
"You Try to Live on 500K in This Town" was the tongue-in-cheek headline in last Sunday's New York Times.
Just add up private school tuition, mortgage payments, maintenance fees and wages for the nanny and you're already up to more than $250,000 a year - and that's pre-taxes, assuming you're paying any. Then tote up payments and upkeep on vacation and weekend homes, charity balls, car and driver - pretty soon you're maxing out your American Express Black Card.
But they work hard for their multi-million dollar salaries and bonuses, perks and solid gold benefits, complained some of the financiers. Besides, executive headhunters say, the money giants just can't get good help for anything less.
Good help? Spare us the kind of moguls who helped us straight into the current deep, dirty hole we're trying to climb out of.
"Like spoiled, petulant children," is how Washington Post columnist Steven Pearlstein described them. "These guys won't be happy until the government agrees to relieve them of every last one of their lousy loans and investments at inflated prices, recapitalize every major bank and brokerage and insurance company on sweetheart terms and restore them to the glory days, so they can once again earn inflated profits and obscene pay packages by screwing over their customers and their shareholders."
Pearlstein was reacting after the five percent dive that stock prices took following freshly minted Treasury Secretary Timothy Geithner's announcement of the Obama Administration's Financial Stability Plan. It's the latest iteration of the bank bailout plan intended to go hand-in-hand with the economic stimulus package. Combined, as much as $3 trillion may be at stake.
The plan immediately was attacked by many as too vague and ineffective. Part of the trouble, critics say, is that Geithner isn't part of the solution, he's part of the problem -- former head of the Federal Reserve in New York and a protégé of Clinton Treasury Secretary Robert Rubin, who last month retired as senior counselor at Citigroup.
That's the bank the government agreed to insure against projected losses of $306 billion, on top of bailouts totaling $45 billion. In other words, Geithner's a player.
The New York Times reported that in preparing the Financial Stability Plan, Geithner opposed tougher conditions on investment firms sought by others in the White House.
Geithner, the Times wrote, "successfully fought against more severe limits on executive pay for companies receiving government aid... resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives..."
This week, on The Baseline Scenario, a blog he co-founded, MIT professor of global economics and management and former International Monetary Fund chief economist Simon Johnson wrote, "There comes a time in every economic crisis, or more specifically, in every struggle to recover from a crisis, when someone steps up to the podium to promise the policies that -- they say -- will deliver you back to growth.
“The person has political support, a strong track record, and every incentive to enter the history books. But one nagging question remains. Can this person, your new economic strategist, really break with the vested elites that got you into this much trouble?"
That question caught the attention of my colleague Bill Moyers, who interviewed Johnson on the current edition of Bill Moyers Journal on public television.
The problem, Johnson told him, is that via millions spent for political contributions and lobbying efforts, the revolving door that sees elites shuttle between jobs in government and business, and by creating a situation in which technical knowledge is limited to a privileged few, the banking and financial services industry has become a kind of ruling oligarchy that stifles attempts to shake up the status quo and make the real change necessary to get us out of the current crisis.
"Either you break the power," Johnson said, "or we're stuck for a long time with this arrangement...
"The policy that we seem to be pursuing, of being nice to the banks, is a mistake. Both from a technical/economic point of view, and from a deeper political point of view... [The banks] think that we're going to pay out 10 or 20 percent of GDP to basically make them whole. It's astonishing."
Johnson has written on The Baseline Scenario blog what he thinks needs to be done: "Reboot the financial system. Find out immediately which banks are insolvent using market prices. Allow private owners to fully recapitalize, if they can. Have the FDIC, the Federal Deposit Insurance Corporation, take over all banks that cannot raise enough private capital, and try to re-privatize those banks quickly, while making sure the taxpayer has strong participation in the upside."
Unfortunately, Johnson fears the oligarchy will prevail.
"My intuition is that this is going to get a lot worse," he told Moyers. "It's going to cost us a lot more money. And we are going down a long, dark, blind alley...
"Eventually, of course, the economy will turn around. Things will get better. The banks will be worth a lot of money and they will cash out.... We and our children will be paying higher taxes so those people could have those bonuses. That's not fair. It's not acceptable. It's not even good economics."
Johnson doubts the political will exists to do what needs to be done. (Editor's emphasis throughout)
According to Tuesday's Boston Herald, last August, another former Treasury Secretary and Rubin pal, Lawrence Summers, now chairman of the of the National Economic Council, hitched a ride back from the Democratic National Convention on board a Citigroup corporate jet -- "the same type that... Citigroup infamously wanted to replace last month with a new $50 million French jet."
Summers didn't pay for the trip, but Citi said it has paid the appropriate taxes. The Herald reported that the plane "was the same one former Citi chief executive Sandy Will took on vacation to Mexico last month, it reportedly includes a full bar, crystal stemware and 'pillows made from Hermès scarves.'"
When you've got it, flaunt it, Larry. Why go to hell in a handbasket when you can fly there executive class, leaning back on a French silk pillow? It's good to be part of an oligarchy.
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