Friday Cartoon Fun: Bob Reich Edition

...Although the financial reform bill may have clipped some of Goldman’s wings — its lucrative derivative business may require Goldman to jettison its status as a bank holding company, and the access to the Fed discount window that comes with it — the main point is that the Goldman settlement reveals everything that’s weakest about the financial reform bill.

The American people will continue to have to foot the bill for the mistakes of Wall Street’s biggest banks because the legislation does nothing to diminish the economic and political power of these giants. It does not cap their size. It does not resurrect the Glass-Steagall Act that once separated commercial (normal) banking from investment (casino) banking. It does not even link the pay of their traders and top executives to long-term performance. In other words, it does nothing to change their basic structure. And for this reason, it gives them an implicit federal insurance policy against failure unavailable to smaller banks — thereby adding to their economic and political power in the future. [emphasis mine]

The bill contains hortatory language but is precariously weak in the details. The so-called Volcker Rule has been watered down and delayed. Blanche Lincoln’s important proposal that derivatives be traded in separate entities which aren’t subsidized by commercial deposits has been shrunk and compromised. Customized derivates can remain underground. The consumer protection agency has been lodged in the Fed, whose own consumer division failed miserably to protect consumers last time around.

On every important issue the legislation merely passes on to regulators decisions about how to oversee the big banks and treat them if they’re behaving badly. But if history proves one lesson it’s that regulators won’t and can’t. They don’t have the resources. They don’t have the knowledge. They are staffed by people in their 30s and 40s who are paid a small fraction of what the lawyers working for the banks are paid. Many want and expect better-paying jobs on Wall Street after they leave government, and so are shrink-wrapped in a basic conflict of interest. And the big banks’ lawyers and accountants can run circles around them by threatening protracted litigation....

From Robert Reich

Robert Reich Chimes In On RTTT

Bail Out Our Schools
MONDAY, MARCH 8, 2010

Any day now, the Obama administration will announce $4.35 billion in extra federal funds for under-performing public schools. That’s fine, but relative to the financial squeeze all the nation’s public schools now face it’s a cruel joke.

The recession has ravaged state and local budgets, most of which aren’t allowed to run deficits. That’s meant major cuts in public schools and universities, and a giant future deficit in the education of our people.

Across America, schools are laying off thousands of teachers. Classrooms that had contained 20 to 25 students are now crammed with 30 or more. School years have been shortened. Some school districts are moving to four-day school weeks. After-school programs have been canceled; music and art classes, terminated. Even history is being chucked.

Pre-K programs have been shut down. Community colleges are reducing their course offerings and admitting fewer students. Public universities, like the one I teach at, have raised tuitions and fees. That means many qualified students won’t be attending.

Last year the nation committed $700 billion to bail out Wall Street banks, the engines of America’s financial capital, because we were told we’d face economic Armageddon if we didn’t.

We’ve got our priorities backwards. Our schools are the engines of our human capital, and if we don’t bail out public education we face a bigger economic Armageddon years from now.

Financial capital moves instantly around the globe to wherever it can earn the best return. Human capital – the skills and insights of our people – is the one resource that’s uniquely American, on which our future living standards uniquely depend.

Starting immediately, the federal government should give states and local governments interest-free loans to make up for all school and university budget shortfalls. The loans can be repaid when the recession is over and local and state tax revenues revive.

Over the longer term we must shift incentives away from financial capital toward human capital. A tiny one half of one percent tax on all financial transactions would generate about $200 billion a year, according to the Economic Policy Institute. That might put a crimp on Wall Street bonuses but it’s enough to fund early childhood education, smaller K-12 classes, and lower tuitions and fees for public higher education. [emphasis mine]

The Street’s financial capital is important to the American economy, but over the long term the classroom’s human capital is absolutely crucial.

Thursday Cartoon Fun: Fat Cat Edition

$9 Billion Check

Too Big to Fail: The $9 Billion Japanese Check to Morgan Stanley

Expletive Laced Brilliance

The new pedagogy includes printers hanging from a string and baseball bats and a well informed teacher:

Secretary Reich, The Only Sane Voice

Specifically, What Should Be Done For Jobs?

In his Saturday radio address, President Obama acknowledged the White House is exploring "additional options to promote job creation.” It's about time. This is the worst job market in seventy years -- including the longest duration of steep job losses.

If anyone had any doubt that something far more dramatic must be done, listen to former Federal Reserve Chairman Alan Greenspan. He warned Sunday against further stimulus because “we are in a recovery, and I think it would be a mistake to say the September numbers alter that significantly.” Greenspan has turned into an inverse soothsayer. After his cataclysmic error about where the economy was headed before the meltdown, his views about the future should be carefully noted as being the exact opposite of what's likely to be in store.

The economy may be in a technical recovery but this is not a real recovery and the "green shoots" or "positive signs" that Wall Street cheerleaders love to shout about are phantoms of their ever-optimistic imaginations. The stimulus is working but it is far from adequate. Before the stimulus, we were losing more than 500,000 jobs a month. Now that 40 percent of the stimulus has been spent, we are losing more than 250,000 jobs a month.

What to do? With the debt ceiling approaching and the gravitational pull of the 2010 elections increasing, the White House can't go back to Congress with a formal bill to enlarge the stimulus package. Four simpler moves would be to:

(1) Use existing authority under both the stimulus package enacted earlier this year and the nefarious TARP bailout fund -- extending and combining them into a fund to make up for state and local cuts in public school budgets, childrens' health, public health (we need workers to administer swine flu vaccine) and public transportation. Instead of bailing out banks and giant automakers, we should switch to bailing out public services that average people need.

(2) Propose a one-year payroll tax holiday on the first $20,000 of income. Republicans as well as Blue Dog Dems could go along with this, and it would be a highly progressive tax cut since 80 percent of Americans pay more in payroll taxes than they do in income taxes.

(3) Give small businesses a "new jobs tax credit" for every net new job created over the next year. Granted, under normal circumstances this sort of jobs credit doesn't have much effect, and it's difficult to separate hires that would have happened anyway from net new ones. But we're not in normal circumstances; small businesses, which are responsible for most new jobs, still aren't hiring. They need a boost.

(4) Dramatically expand the Small Business Administration's lending programs and have the Fed buy up the SBA's debt. Big banks are not lending to small businesses. TARP has been an utter failure in this regard. The SBA and the Fed should circumvent them and help small businesses get the capital they need, so they can start hiring again.

The politics of these four steps aren't difficult. It would be hard to get a new stimulus package through Congress, but no member who's up for reelection next year when unemployment is likely to be in double digits wants to be accused by rivals of voting against steps to help small businesses, public schools, childrens' health, and average working people who need a tax cut.

Matt Taibbi: Where Are The Crazy Police?

Matt Taibbi exposes yet another horror:

Goldman Sachs has developed a tradable index of life settlements, enabling investors to bet on whether people will live longer than expected or die sooner than planned. The index is similar to tradable stock market indices that allow investors to bet on the overall direction of the market without buying stocks.

Spokesmen for Credit Suisse and Goldman Sachs declined to comment.

via NYTimes.com.

In reference to the above, Taibbi wonders:

But even beyond that… what the fuck??? This feels like financial innovation as practiced by Josef Mengele meets the Zucker Brothers; not just evil, but wacky evil. I don’t even want to think about what happens when Goldman Sachs suddenly has a large financial stake in the premature deaths of a bunch of old people. Where are the crazy police? Where is the crack federal crazy squad with the big butterfly net? I don’t know about betting on anyone’s life expectancy, but I think I’d like to bet on whether or not this idea ends well.

AIG Has A New Greedy Bastard Leader

Matt Taibbi introduces us to AIG's new head honcho:

The recently-crowned head of international financial embarrassment AIG, Robert Benmosche, has launched a campaign to “restore morale” to his beleaguered employees, who are apparently a) cracking under the strain of public anger and b) having performance anxiety that may be linked to a fear that they will never again be allowed to make obscene and undeserved bonuses, so long as the taxpayer is writing their checks.

This is very sad, no doubt, and must be a terrible burden for anyone working on Wall Street to have to bear. So into the breach steps Benmosche, who became CEO of the firm last month. His new public mantra is that what happened to AIG isn’t the fault of AIG, but rather the fault of the government regulators who allowed AIG to destroy itself and iceberg the hull of the American economy. This is how he put it:

“It’s time the people in Congress stopped talking about you as the problem, because you’re the solution,” he said. “It’s not your fault, it’s their fault, it’s the regulators’ fault.”

Saturday Cartoon Fun: Various Issues Edition

What A Trillion Dollars Looks Like

h/t Sully

Wednesday Cartoon Fun: Literal Edition

My Summer Garden

Someone will get this when I lose the house...

Saturday Cartoon Fun: Return Of Bonuses Edition

Goldman, Sachs: Apology Not Accepted

Matt Taibbi takes down Goldman, Sachs apology. A taste:

So some Dutch teachers’ union that a year before was buying ultra-safe U.S. Treasury bonds in 2006 runs into a Goldman salesman who offers them a different, “just as safe” AAA-rated investment that, at the moment anyway, just happens to be earning a much higher return than treasuries. Next thing you know, a bunch of teachers in Holland are betting their retirement nest eggs on a bunch of meth addicted “homeowners” in Texas and Arizona.

This isn’t really commerce, but much more like organized crime: it was a gigantic fraud perpetrated on the economy that wouldn’t have been possible without accomplices in the ratings agencies and regulators willing to turn a blind eye. Imagine a meat company that bred ten billion rats, fattened them on trash and sewage, ground their bodies into chuck, and then sold it all as grade-A ground beef to McDonald’s and Burger King, right under the noses of the USDA: this is exactly the same thing, only with debt instead of food. We’re eating it, they’re counting the money.

"...They Should Be Setting An Example"

Taibbi on Taibbi and AIG and who we should be careful not to blame:

These Wall Street players are enormously compensated, which supposedly means that society highly values their work and is willing to pay them a premium to do it. Having been given that kind of responsibility and trust, these assholes should not then force us to police them as tightly as we police those who we expect to steal from us, like third-rate car salesmen, telemarketers, hookers and three-card monty dealers. With that kind of money they should be setting an example. We are paying them as though they are leaders of society, so they should lead. Instead they ripped us off like common criminals. I mean, the level of morals here is astonishing. In my entire life I’ve never met a drug dealer who would even think about trying half the shit that banks like Goldman Sachs and Citibank pulled during these years.

Well, that’s not true — okay, I did once try to buy weed from a guy I didn’t know in Washington Square, and got ripped off. I was young and stupid. The guy sold me a bag of oregano and immediately, I mean immediately, took off running and disappeared down 8th street. Guys like that usually have a life expectancy of about ten minutes, because eventually they pick someone who isn’t some lily-livered white college student to sell oregano to and they get their heads beat in with lead pipes. That’s what happens in the actual world. In the world of high finance, what happens when they catch you pulling that kind of stunt is they give you fifty billion taxpayer dollars.

Thursday Cartoon Fun: Bernanke Edition

Lizza On Stewart Pwning Orszag

From Ryan Lizza's New Yorker piece:

Stewart was not satisfied. “Is it hard to talk to someone who doesn’t know what the hell he’s talking about?” he said. “Because I’m watching you calculate, like, ‘Am I gonna go second grade on this guy? Do I have to go seventh grade on this guy? How do I do this?’ ” He asked Orszag why the government didn’t just bail out borrowers who have defaulted. “The problem is, if you just focussed on the people who defaulted you create this huge incentive to default,” Orszag replied. Stewart looked at Orszag with an astonished grin. Before Stewart could finish pointing out that the government is creating an equally huge incentive by bailing out the financial firms Orszag realized that he had been backed into a corner: “Yeah, none of this is perfect!”

John Stewart has a point. If all that bailout money had been given to the citizens who were in danger of default, the default danger would have been averted. Yes, some morons would decide that default is a great idea if the government is going to be bailing folks out. But isn't bailing out a guy like me, for the astronomical sum of say, a couple hundred thousand dollars, better than bailing out a bank where folks expect to get paid that much each year?

It was a mistake to bail out the greedy bastards. It should have been us, citizens, who got bailed out, and Orszag pretty much admitted as much in the quote above.

Reich On Bailout: No More! Give Us Stimulus!

We Need More Stimulus, Not More Bailout

With only $110 billion remaining in the TARP bailout fund, all signs are that Tim Geithner is preparing to return to Congress seeking more bailout money. He’ll bring along the results of his bank “stress tests,” which will probably show many that big banks are still technically insolvent, along with bankruptcy scenarios for General Motors and Chrysler, and a couple of CEO scalps – he’s already got GM’s. Congress won’t be happy but in the end it will cough up another 300 to 500 billion.

Geithner believes the only way to rescue the economy is to get the big banks to lend money again. But he’s dead wrong.[emphasis mine] Most consumers cannot and do not want to borrow lots more money. They’re still carrying too much debt as it is. Even if they refinance their homes – courtesy of the Fed flooding the market with so much money mortgage rates are dropping – consumers are still not going to borrow more. And until there’s enough demand in the system, businesses aren’t going to borrow much more to invest in new plant or machinery, either.

That’s the big issue – the continued lack of enough demand in the economy. The current stimulus package is proving way too small relative to the shortfall between what consumers and businesses are buying and what the economy could produce at full capacity. (According to today's report from the Commerce Department, retail sales fell in March, as did prices paid to U.S. producers.)


Worse yet, the states are pulling in the opposite direction. States cannot run deficits, which means that as their revenues drop in this downturn they’re cutting vital services and raising taxes to the tune of $350 billion over this year and next. This fiscal drag is wiping out about half of the current federal stimulus.

If Geithner gets Congress to give him more bailout money, Congress won’t be in any mood to do what it really needs to do – which is to enlarge the stimulus package. Voters are already worried about too much government spending. At most, the administration is going to get only one more bite at the congressional apple. Make that more stimulus rather than more bailout.

Wednesday Cartoon Fun: Bank CEO vs Auto CEO Edition

Don't Criticize What You Can't Understand

I love reading Michael Kinsley. He is among the smartest of his generation.

Transparent Obfuscation
A Rescue Plan With the Clarity of a Credit Default Swap

By Michael Kinsley
Friday, March 27, 2009; A17

"The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction."

Got that? It's a sentence, chosen more or less at random, from the most recent (2002) Master Agreement of the International Swap and Derivatives Association. These are the people who brought you the "credit default swap," the mysterious financial transaction that almost destroyed the world, and might yet do so if the Obama administration's rescue plan doesn't work. The Master Agreement is used for credit default swaps the way a standard real estate broker's lease is used for renting a one-bedroom apartment.

Except that we all know what a one-bedroom apartment is. How many of us know what a credit-default swap is? The media do their best to explain it, often using attractive drawings with arrows showing money going hither and thither. Or sometimes they throw up their hands, as I'm doing, and simply describe them as "exotic financial instruments," and leave it at that. Part of the hostility that banks and Wall Street now enjoy comes from a popular suspicion that the mystery and complexity are part of the point -- that these things are made impossible to explain on purpose, as a way of avoiding scrutiny. "Don't criticize what you can't understand," as the financier Bob Dylan once put it in another context.

One problem with the Obama financial rescue plan is that it is almost as complicated and obscure as the problem it is designed to solve. Treasury Secretary Tim Geithner, testifying yesterday on Capitol Hill, called for greater simplicity in financial regulation. Good luck with that. Here is a sample passage from one of the explanatory documents released by Treasury this week. "Private investors may be given voluntary withdrawal rights at the level of a Private Vehicle, subject to limitations to be agreed with Treasury including that no private investor may have the right to voluntarily withdraw from a Private Vehicle prior to the third anniversary of the first investment by such Private Vehicle." All this talk of getting into and out of private vehicles may be a sly reference to the car and driver that did in Tom Daschle. Otherwise, who knows?

The government's most urgent goal is to cleanse the financial system of "toxic assets." These used to be known as "bad debts" until somebody decided that a more hysterical term was needed to reflect the gravity of the situation. Nobody gives a hoot about bad debts anymore. The government could have just swallowed hard and bought up these toxic assets itself. Then it could have buried them at Yucca Mountain in Nevada, where it has almost completed a $13.5 billion nuclear waste dump, just in time to promise never to use it, at least not for nuclear waste. Unlike nuclear waste, credit default swaps are unlikely to leach into the groundwater. And even if they do, there is no detectable difference between trading in derivatives such as credit default swaps and Nevada's principal industry anyway. Except that the amounts involved in Nevada-style recreational gambling are much smaller. Oh, and the government doesn't bail out petty gamblers. Yet.

But the administration decided that it would be more exciting to let private financiers in on the fun. This is an odd echo of what created the mess in the first place. Government-chartered entities such as Fannie Mae and Freddie Mac operated with an implicit government guarantee, whereas firms we all thought were private, like AIG and Citicorp, were deemed "too big to fail." One way or another, the government got sucked in against its will. It felt it had no choice. The private firms now pondering whether to join the party do have a choice, so they will have to be subsidized.

The plan is very, very clever. Maybe too clever. It depends on convincing smart financiers that there is a killing to be made investing, with government help, in toxic assets. Inevitably, when the dust settles, it will turn out that some private firms and individuals actually have made a killing, which will cause another eruption of populist resentment like the one over the AIG bonuses. Fear of such an eruption, and any retrospective mischief coming out of Congress as a result, is going to make private money harder to entice, which means the subsidies will have to be larger, which means the killings will even be greater.

It's good, in most ways, to have populist resentment back where it belongs, aimed at financial targets rather than frittering its energy on absurd culture wars over issues such as flag burning. Most people, I suspect, would happily sacrifice a few flags for an equal number of percentage points subtracted from the unemployment rate. But if that resentment boils over into protectionism, for example, it won't be so good.

The cure for everything these days, especially in the business world and also in the government, is thought to be "transparency": no secrets. Let people know everything, and abuses will self-correct. But transparency requires more than just supplying the information. What good is putting it all out there if it's too complicated to understand?