The Case Against Geithner

by Dylan Ratigan, Huffington Post

As we sit here today, Wall Street continues to exploit a policy of government-sponsored giveaways and secrecy to pay themselves billions.

Record-setting bonuses due to banks like Goldman Sachs as early next week.

Yet instead of acting as our cop, Secretary Tim Geithner has become central to what may be a cover-up of the greatest theft in U.S. history.

Here is the evidence.

COUNT 1: The AIG Emails:

Recently-released emails show Geithner's New York Federal Reserve Bank directing AIG to keep details of the 100-cents-on-the-dollar bailout secret in 2008 -- A reversal of the traditional role of government, which is to force companies to become more transparent, not less.

A Treasury Spokeswoman says: "Secretary Geithner played no role in these decisions and indeed, by November 24, he was recused from working on issues involving specific companies, including AIG."

Friday, the White House also defended the Treasury Secretary:

Gibbs: These decisions did not rise to his level at the fed.

CNN's Ed Henry: How do you know that he wasn't involved? He was the leader of the New York Fed.

Gibbs: Right, but he wasn't on the emails that have been talked about and wasn't party to the decision that was being made.

He wasn't party to a decision to hide $62 billion dollar payouts to firms that became insolvent during his 5-year watch at the New York Fed?

Congressman Darrell Issa speculates that maybe Geithner wasn't on the emails in question because his people felt so strongly they already knew their boss's intentions, they didn't feel the need to bother him with the details.

COUNT 2: He wasn't even a regulator!

In Geithner's own words during confirmation hearings in March:

"First of all, I've never been a regulator...I'm not a regulator."

According to the New York fed bank's website, that was your job!! And I quote from the Fed's website: "As part of our core mission, we supervise and regulate financial institutions in the Second District."

That district of course is the epicenter for bailed out banks and billion dollar bonuses.

Count 3: "The Christmas Eve Taxpayer Massacre."

As you were wrapping those last presents, Geithner's Treasury Department lifted the 400-billion dollar cap on taxpayer responsibility for potential losses for Fannie Mae and Freddie Mac.

The new cap? Unlimited taxpayer funds! Interesting timing... Christmas eve, Tim?

Still no word on recovering the hundreds of millions paid to the CEOs who created this mess.

COUNT 4: He's too cozy with certain banks.

Remember those call logs when he first started... 80 contacts with Goldman Sachs, JP Morgan, and CitiGroup CEOs in just 7 months!

But Bank of America's CEO only got three calls. Apparently Bank of America is not one of Geithner's favorites, especially when you consider that there are still many unanswered questions about Tim Geithner's role in threatening to fire Bank of America management if they didn't go through with a deal to buy Merrill lynch.

COUNT 5: TARP Special Investigator Neil Barofsky's report says Geithner's New York Fed overpaid the big banks through AIG by billions of dollars.

Geithner says it had to be done. Maybe so, maybe not, but this takes us to our final point.

Since then, the Treasury Secretary has yet to really prove whose side he's on -- the Wall Street big wigs or the American taxpayer? Here's the litmus test: Mr. Geithner, show us the past ten years of AIG emails or step down so that we can get somebody who will. A crime has been committed against the American taxpayer and right now you are standing at the door of the crime scene refusing to let anyone in.

Show us you're not involved Mr. Geithner, prove the white house correct in defending you. All we are asking for is the transparency promised by the President you serve.

Follow Dylan Ratigan on Twitter: www.twitter.com/DylanRatigan

Feeling Too Down to Rise Up

By SUDHIR VENKATESH

IN Chicago, during the summer of 1992, I watched a rally explode into a riot. Unruly public housing tenants were protesting high prices at local grocery stores. A request to speak with a manager turned into shouts and screams when the proprietor was spotted scurrying out the back door. In minutes, bottles flew overhead, gangs began shooting indiscriminately, people shouted for the heads of the management, and mothers scrambled to shelter infants from flying glass and bullets. In the eyes of the rioters, I could see both anger and euphoria.

These days, we are hearing a lot about “populist rage,” but so far no riots have broken out in front of the Treasury Department or the A.I.G. headquarters. The pundits assure us that Americans are furious, disgusted, mad as hell, but cabinet officials and chief executives haven’t been confronted by throngs of angry citizens. In fact, the only mass disturbance to make news lately was at an “America’s Next Top Model” audition, where three people were arrested on charges of “inciting a riot” — the cause of that uprising, for the record, was not the financial crisis.

The texture of discontent (or lack thereof) can say a lot about a nation, and that Americans today are less likely to rebel may not be an entirely positive sign.

It certainly doesn’t mean we have more love, patience or tolerance for one another. Indeed, it may mean just the opposite, that we tend not to trust one another and that we are more alienated from our neighbors than ever before. The lack of direct action could signal the weakening of a social contract that keeps people meaningfully invested in the fate of our country — which may, in turn, be hindering our ability to resolve this crisis.

Before blogs and radio call-in shows, people joined forces and turned to the streets as their most effective means of expression; a unified, angry crowd was often sufficient to win concessions from employers and governments. And so most rebellions of the 20th century were over bread-and-butter issues like unsafe work conditions, wages and high prices for basic commodities. Even “race riots” were usually motivated by competition between ethnic groups over access to jobs and housing subsidies.

But some outbreaks of lawlessness were also indicators of strong, shared sentiments and were driven by a sense of higher purpose. For example, in 1919 Chicago, black soldiers returned home from World War I to find segregated ghettos, white-dominated unions and racist government practices. Many joined their neighbors who battled white youth and police officers in the streets. They had fought an enemy overseas; now it was their moral duty to fight injustice at home.

Today widespread anger and collective passivity exist side by side. To explain this seeming contradiction, we might look for clues — as so many are doing — in 1930s America. Then, as now, the citizenry reacted angrily to high unemployment, mass layoffs and a crippled banking system.

But it was only several years after the stock market crash that large-scale protests, bread riots and street rebellions began to occur in small towns and big cities. That’s the most pertinent lesson of the Great Depression: people waited, with relative patience, for years for some government response before anyone looted a grocery store or fought off police officers who were evicting families. So it’s possible that if our economic hardships endure, civil unrest could follow.

But if American anger remains corralled on the Internet, into e-mail messages to Congress and in sporadic small-group protests, it is unlikely that the Obama administration will do much to assuage the anger of taxpayers. Administration officials certainly don’t seem concerned that rage will heat up and overflow; after all, anticipating unrest would mean a broad and intensive campaign to shore up housing, food and welfare safety nets. The proposed budget contains a few such line items, but a comprehensive, coordinated program to prevent violence and defuse anger would need sustained commitments from mayors, service providers and civic leaders.

Perhaps the lack of concern is warranted, as several factors make widespread revolt less likely today. Our cities are no longer dense, overcrowded industrial centers where unionized laborers and disgruntled strikers might take a public stand. Concentrated inner-city poverty has declined, too, so don’t expect 1960s-style ghetto unrest.

Our urban centers are instead corporate hubs and the victims of this recession include hundreds of thousands of white-collar workers. For obvious reasons, these folks tend not to have the particular sense of grievance — that a select few are receiving preferential treatment, that they’re on the losing end of a rigged game — that usually sets off a conflagration.

And in today’s cities, even when we share intimate spaces, we tend to be quite distant from one another. Mass disturbances are not highly orchestrated ballets. They require spontaneous interaction, a call and response among unidentified cries of rage, the possibility for a unified mass to form from a gathering of loosely connected individuals.

But these days, technology separates us and makes more of our communication indirect, impersonal and emotionally flat. With headsets on and our hands busily texting, we are less aware of one another’s behavior in public space. Count the number of people with cellphones and personal entertainment devices when you walk down a street. Self-involved bloggers, readers of niche news, all of us listening to our personal playlists: we narrowly miss each other. Effective rebellions require that we sing in unison.

We may also have anger fatigue. Each day brings more layoffs and more news of taxpayer-financed corporate office renovations. Add to this the Iraq war, which is six years old this month, and a national debt that will likely rise by trillions. Such reports provoke fury but after some time, even the righteously indignant can tire and accept the outrageous as status quo.

Ultimately, however, what could keep the lid on unrest is the very issue that has pushed us toward the cliff: our high levels of personal and household debt. The average American owes about $9,000 on credit cards alone. Indebtedness redirects an individual’s energies inward: failing to pay the mortgage and college tuition can bring up feelings of anxiety, shame and a sense of personal failure.

It’s easy to feel that one isn’t working hard enough, that one should try harder to save money or take on additional work. To rebel publicly, even to engage politically, would mean exposing your own inadequacies, so most people just hunker down and keep plugging away at those monthly payments.

As our shame grows, we shutter ourselves inside. Afraid of acknowledging our anger and unable to join those similarly suffering, we grow distant. Worse, we judge quickly and harshly the actions of others; we devolve into snark, which will never lead to meaningful change.

To restore our social bonds, each one of us must overcome our isolating feelings of embarrassment and humiliation and understand that this is a shared plight. We’ll also have to accept that anger, real anger, has a role to play in producing collective catharsis and fostering healing.

Fury, after all, can manifest itself in more productive ways than urban rioting or cable-TV ranting. Fury can inspire real protest, nonviolent civil disobedience, even good old-fashioned, town-hall meetings. That’s how we’ll recover our public life and perhaps help one another through this crisis — storming angrily into the streets and then, once we’re out there, actually talking to one another.

Sudhir Venkatesh, a professor of sociology at Columbia, is the author of “Gang Leader for a Day: A Rogue Sociologist Takes to the Streets.”

Financial Policy Despair

By PAUL KRUGMAN

Over the weekend The Times and other newspapers reported leaked details about the Obama administration’s bank rescue plan, which is to be officially released this week. If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.

This is more than disappointing. In fact, it fills me with a sense of despair.

After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.

And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.

It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.

Let’s talk for a moment about the economics of the situation.

Right now, our economy is being dragged down by our dysfunctional financial system, which has been crippled by huge losses on mortgage-backed securities and other assets.

As economic historians can tell you, this is an old story, not that different from dozens of similar crises over the centuries. And there’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.

That’s what Sweden did in the early 1990s. It’s also what we ourselves did after the savings and loan debacle of the Reagan years. And there’s no reason we can’t do the same thing now.

But the Obama administration, like the Bush administration, apparently wants an easier way out. The common element to the Paulson and Geithner plans is the insistence that the bad assets on banks’ books are really worth much, much more than anyone is currently willing to pay for them. In fact, their true value is so high that if they were properly priced, banks wouldn’t be in trouble.

And so the plan is to use taxpayer funds to drive the prices of bad assets up to “fair” levels. Mr. Paulson proposed having the government buy the assets directly. Mr. Geithner instead proposes a complicated scheme in which the government lends money to private investors, who then use the money to buy the stuff. The idea, says Mr. Obama’s top economic adviser, is to use “the expertise of the market” to set the value of toxic assets.

But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets.

The likely cost to taxpayers aside, there’s something strange going on here. By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they’re doing something completely different. This is starting to look obsessive.

But the real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.

You might say, why not try the plan and see what happens? One answer is that time is wasting: every month that we fail to come to grips with the economic crisis another 600,000 jobs are lost.

Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.

All is not lost: the public wants Mr. Obama to succeed, which means that he can still rescue his bank rescue plan. But time is running out.

Cramer v. Stewart, in person

Alex Koppleman, Salon.com, March 13, 2009

In the day leading up to Thursday night's face-to-face meeting between feuding cable hosts Jim Cramer and Jon Stewart, both men seemed to be trying to defuse tensions and downplay their very public spat. Stewart even told his audience on Wednesday that the interview, when it happened, was, "by all measure, bound to disappoint anyone that's been following."

He was wrong. What "Daily Show" viewers saw on Thursday night wasn't a boring love-in; it was a smackdown, or perhaps an homage to the human sacrifice scene from "Indiana Jones and the Temple of Doom" -- the one where they rip the victim's heart out and show it to him. At the very least, it was a riveting half-hour, something almost completely unlike anything else ever seen on television.

The clue that the interview wouldn't be rainbows and hugs came early on, when Stewart told his guest, "Look, we're both snake oil salesmen to a certain extent." Cramer, still eager to please, jumped in to say, "I'm not disagreei--" before being cut off by Stewart, who said, "But we do label the show as snake oil here." At this, the CNBC host visibly grimaced.

At points like that during the interview -- and there were many of them -- you almost had to feel sorry for Cramer. It was clear he'd come to the interview prepared to make nice, even desperate to. His voice was plaintive and cracking, his eyes were watery, he seemed willing and eager to agree with any and all of Stewart's criticisms in a futile effort to make the pain stop. Besides, just Wednesday night, the "Daily Show" host had been playing down the feud, and now here he was rolling numerous clips from a 2006 interview that shows Cramer discussing some unsavory practices from his hedge fund days, the kinds of things that could get the Securities and Exchange Commission involved.

And then, on the other hand, so much of the beating Stewart delivered felt deserved, especially when, towards the end, he started getting mad.

"I understand you want to make finance entertaining. But it's not a fucking game," he told Cramer. Then, referring to that video, he continued:

And I -- when I watch that, I get, I can't tell you how angry that makes me. Because what it says to me is that you all know. You all know what's going on. You can draw a straight line from those shenanigans to the stuff that was being pulled at Bear and at AIG and all this derivative market stuff that is this weird Wall Street side bet... Listen, you knew what the banks were doing and yet were touting it for months and months. The entire network was. And so now to pretend this was some crazy once-in-a-lifetime tsunami that no one could have seen coming is disingenuous at best and criminal at worst.

Stewart made clear, on more than one occasion, that it was really CNBC and financial journalism he was angry with, not just Cramer, but that the "Mad Money" host had become the symbol for his anger. And he took out after financial journalism generally.

"Look, nobody's asking for them to be a regulatory agency. But can't -- whose side are they on?" Stewart asked Cramer at one point. "It feels like they have to reconcile: Is their audience the Wall Street traders... These guys at these companies were on a Sherman's March through their companies financed by our 401Ks... And they burned the fucking house down with our money and walked away rich as hell and you guys knew that that was going on."

It's hard to knock Stewart for this kind of thing, as he's absolutely right about what financial journalists should have been doing and about their failure to report a realistic picture of the big banks rather than the rosy one painted by their executives. But he did come across a little naïve, especially for someone who works in television. CNBC's audience is absolutely the traders -- they're the lifeblood of the network. Lay people don't watch business news 24 hours a day, but people in the field do, and so CNBC and plenty of other financial journalism is made by them and for them. Doing the kind of hard-hitting reporting Stewart is calling for would screw up the business model.

Still, it's a nice dream to have, and Stewart at least got his opponent to agree to try it his way.

"Maybe we could remove the financial expert and the 'In Cramer We Trust' and start getting back to fundamentals on the reporting as well and I can go back to making fart noises and funny faces," he said at the close of the interview.

"I think we make that deal, right here," Cramer responded, and the two men shook hands.

― Alex Koppelman

Who Wants to Kick a Millionaire?

By Frank Rich, NY Times

DURING the Great Depression, American moviegoers seeking escape could ogle platoons of glamorous chorus girls in “Gold Diggers of 1933.” Our feel-good movie of the year is “Slumdog Millionaire,” a Dickensian tale in which we root for an impoverished orphan from Mumbai’s slums to hit the jackpot on the Indian edition of “Who Wants to Be a Millionaire.”

It’s a virtuoso feast of filmmaking by Danny Boyle, but it’s also the perfect fairy tale for our hard times. The hero labors as a serf in the toilet of globalization: one of those mammoth call centers Westerners reach when ringing an 800 number to, say, check on credit card debt. When he gets his unlikely crack at instant wealth, the whole system is stacked against him, including the corrupt back office of a slick game show too good to be true.

We cheer the young man on screen even if we’ve lost the hope to root for ourselves. The vicarious victory of a third world protagonist must be this year’s stocking stuffer. The trouble with “Slumdog Millionaire” is that it, like all classic movie fables, comes to an end — as it happens, with an elaborately choreographed Bollywood musical number redolent of “Gold Diggers of 1933.” Then we are delivered back to the inescapable and chilling reality outside the theater’s doors.

Just when we thought that reality couldn’t hit a new bottom it did with Bernie Madoff, a smiling shark as sleazy as the TV host in “Slumdog.” A pillar of both the Wall Street and Jewish communities — a former Nasdaq chairman, a trustee at Yeshiva University — he even victimized Elie Wiesel’s Foundation for Humanity with his Ponzi scheme. A Jewish financier rips off millions of dollars devoted to memorializing the Holocaust — who could make this stuff up? Dickens, Balzac, Trollope and, for that matter, even Mel Brooks might be appalled.

Madoff, of course, made up everything. When he turned himself in, he reportedly declared that his business was “all just one big lie.” (The man didn’t call his 55-foot yacht “Bull” for nothing.) As Brian Williams of NBC News pointed out, the $50 billion thought to have vanished is roughly three times as much as the proposed Detroit bailout. And no one knows how it happened, least of all the federal regulators charged with policing him and protecting the public. If Madoff hadn’t confessed — for reasons that remain unclear — he might still be rounding up new victims.

There is a moral to be drawn here, and it’s not simply that human nature is unchanging and that there always will be crooks, including those in high places. Nor is it merely that Wall Street regulation has been a joke. Of what we’ve learned about Madoff so far, the most useful lesson can be gleaned from how his smart, well-heeled clients routinely characterized the strategy that generated their remarkably steady profits. As The Wall Street Journal noted, they “often referred to it as a ‘black box.’ ”

In the investment world “black box” is tossed around to refer to a supposedly ingenious financial model that is confidential or incomprehensible or both. Most of us know the “black box” instead as that strongbox full of data that is retrieved (sometimes) after a plane crash to tell the authorities what went wrong. The only problem is that its findings arrive too late to save the crash’s victims. The hope is that the information will instead help prevent the next disaster.

The question in the aftermath of the Madoff calamity is this: Why do we keep ignoring what we learn from the black boxes being retrieved from crash after crash in our economic meltdown? The lesson could not be more elemental. If there’s a mysterious financial model producing miraculous returns, odds are it’s a sham — whether it’s an outright fraud, as it apparently is in Madoff’s case, or nominally legal, as is the case with the Wall Street giants that have fallen this year.

Wall Street’s black boxes contained derivatives created out of whole cloth, deriving their value from often worthless subprime mortgages. The enormity of the gamble went undetected not only by investors but by the big brains at the top of the firms, many of whom either escaped (Merrill Lynch’s E. Stanley O’Neal) or remain in place (Citigroup’s Robert Rubin) after receiving obscene compensation for their illusory short-term profits and long-term ignorance.

There has been no punishment for many of those who failed to heed this repeated lesson. Quite the contrary. The business magazine Portfolio, writing in mid-September about one of the world’s biggest insurance companies, observed that “now that A.I.G is battling to survive, it is its black box that may save it yet.” That box — stuffed with “accounting or investments so complex and arcane that they remain unknown to most investors” — was so huge that Washington might deem it “too big to fail.”

Sure enough — and unlike its immediate predecessor in collapse, Lehman Brothers — A.I.G. was soon bailed out to the tune of $123 billion. Most of that also disappeared by the end of October. But not before A.I.G. executives were caught spending $442,000 on a weeklong retreat to a California beach resort.

There are more black boxes still to be pried open, whether at private outfits like Madoff’s or at publicly traded companies like General Electric, parent of the opaque GE Capital Corporation, the financial services unit that has been the single biggest contributor to the G.E. bottom line in recent years. But have we yet learned anything? Incredibly enough, as we careen into 2009, the very government operation tasked with repairing the damage caused by Wall Street’s black boxes is itself a black box of secrecy and impenetrability.

Last week ABC News asked 16 of the banks that have received handouts from the Treasury Department’s $700 billion Troubled Asset Relief Program the same two direct questions: How have you used that money, and how much have you spent on bonuses this year? Most refused to answer.

Congress can’t get the answers either. Its oversight panel declared in a first report this month that the Treasury is doling out billions “without seeking to monitor the use of funds provided to specific financial institutions.” The Treasury prefers instead to look at “general metrics” indicating the program’s overall effect on the economy. Well, we know what the “general metrics” tell us already: the effect so far is nil. Perhaps if we were let in on the specifics, we’d start to understand why.

In its own independent attempt to penetrate the bailout, the Government Accountability Office learned that “the standard agreement between Treasury and the participating institutions does not require that these institutions track or report how they plan to use, or do use, their capital investments.” Executives at all but two of the bailed-out banks told the G.A.O. that the “money is fungible,” so they “did not intend to track or report” specifically what happens to the taxpayers’ cash.

Nor is there any serious accounting for executive pay at these seminationalized companies. As Amit Paley of The Washington Post reported, a last-minute, one-sentence loophole added by the Bush administration to the original bailout bill gutted the already minimal restrictions on executive compensation. And so when Goldman Sachs, Henry Paulson’s Wall Street alma mater, says that it is not using public money to pay executives, we must take it on faith.

In the wake of the Madoff debacle, there are loud calls to reform the Securities and Exchange Commission, including from the president-elect. Under both Clinton and Bush, that supposed watchdog agency ignored repeated and graphic warnings of Madoff’s Ponzi scheme as studiously as Bush ignored Al Qaeda’s threats during the summer of 2001.

But fixing that one agency is no panacea. All the talk about restoring “confidence” and “faith” in capitalism will be worthless if we still can’t see what’s going on in the counting rooms. In his role as chairman of the Federal Reserve Bank of New York, Timothy Geithner, Barack Obama’s nominee for Treasury secretary, has been at the center of the action in the bailout’s black box, including the still-murky and conflicting actions (and nonactions) taken with Lehman and A.I.G. His confirmation hearings demand questions every bit as tough as those that were lobbed at the executives from Detroit’s Big Three.

On Friday, Geithner’s partner in bailout management, Paulson, asked Congress to give the Treasury the second half of the $700 billion bailout stash. But without transparency and accountability in Washington’s black box, as well as Wall Street’s, there will continue to be no trust in the system, no matter how many cops the S.E.C. puts on the beat. Even the family-owned real-estate company of Eliot Spitzer, the former “Sheriff of Wall Street,” had entrusted money with Madoff.

We’ll keep believing, not without reason, that the whole game is as corrupt as the game show in “Slumdog Millionaire” — only without the Hollywood/Bollywood ending. We’ll keep wondering how so many at the top keep avoiding responsibility and reaping taxpayers’ billions while relief for those at the bottom remains as elusive as straight answers from those Mumbai call centers fielding American debtors.

This wholesale loss of confidence is a catastrophe that not even the new president’s most costly New Deal can set right.

A Simple Question

From me... please read the following articles. They should provide you with varying information on the $700 Billion Bailout using our money.

Henry Paulson wants no Congressional oversight, no need to answer to any courts, no equity for U.S. Citizens for providing all of this money, and.... NO SALARY CAPS FOR CEO's AND WALL STREET EXECUTIVES!

His reason? He's afraid these companies won't participate.

My simple question? If they need this money so badly and so quickly.... why wouldn't they accept those limits on salaries if they're not able to share that risk we're taking?

I may ask a second question. (I know I said I'd only ask one.) If they're not willing to share in equity and risk... and cap their salaries if they're underperforming... DO THEY REALLY NEED THIS BAILOUT THAT THEY'RE ASKING FOR SO QUICKLY?

Where's George?

Wall Street's Man in Washington

By Harold MeyersonThursday, September 25, 2008;

This past winter, when American banks were already scrambling for capital, foreign investors came to their rescue. Last November, the Abu Dhabi Investment Authority put $7.5 billion into Citigroup. One month later, Merrill Lynch sold $4.4 billion worth of new stock to Temasek Holdings of Singapore, and Morgan Stanley sold a $5 billion stake to China Investment Corp. In January, Merrill Lynch issued $6.6 billion of preferred stock to Korea Investment Corp. and the Kuwait Investment Authority, among others.

These far-flung buyers had one thing in common: They aren't private concerns. Each is a sovereign wealth fund, investing its national treasury's money -- its citizens' money -- in an effort to help out the hemorrhaging banks of Wall Street.

But these were not charitable outlays. The citizens of Abu Dhabi, Singapore, China, Korea and Kuwait got something in return for their treasuries' aid packages to American finance. They got stock. They got an equity interest in those banks.

These may not, just now, seem like the shrewdest investments ever made. Still, all those East Asian and petro-state citizens will probably reap some long-term profits if their treasuries hang on to those shares in Bank of America-Merrill, or Citigroup, or Morgan Stanley and Whomever It Merges With.

Which, sadly, is more than can be said for American citizens in the deal that Treasury Secretary Hank Paulson brought down from his Mount Sinai penthouse over the weekend. In Paulson's plan, the American public pours at least $700 billion of its money into purchasing the bad loans on Wall Street's books and gets -- well, it gets the thanks of a grateful Wall Street. It does not get any equity in return. To receive a return for their investment, Americans would have to become Chinese or Kuwaiti or Abu Dhabian; they would have to move to some country that accords a little more respect to the public's claim over its money.

During past financial crises, Americans did get something in return for the assistance their government proffered to Wall Street. As my American Prospect colleague Robert Kuttner has noted, when the Depression-era Reconstruction Finance Corp. (a bipartisan creation -- Herbert Hoover started it and Franklin Roosevelt continued it) poured $35 billion into American banks and corporations, it often became a preferred shareholder in those concerns and appointed members to those companies' boards to oversee their operations. Other quids offset the quos of the Resolution Trust Corp., which handled the savings and loan meltdown in the 1980s.

In Paulson's original proposal, by contrast, the Treasury secretary would write plenty of checks, unconstrained by any balances. Not surprisingly, Democrats in Congress have countered with a set of proposals to subject Treasury to stricter oversight and congressional accountability, to provide more direct relief to beleaguered homeowners, to restrict the pay of executives at companies that dump their bad deals on the Treasury, and to provide the public with an equity interest in the companies that taxpayers bail out. Paulson has reportedly acceded to more oversight and some more help for homeowners but is still defending the rights of CEOs to pay themselves astronomical sums and opposing efforts to give Americans a share of the companies whose bad loans they are assuming.

On one Sunday talk show, Paulson dismissed the idea of reining in top executives' pay. "If we design [the bailout] so it's punitive and so institutions aren't going to participate," he said, "this won't work the way we need it to work."

That depends on your definition of "we," does it not? In recent years, Wall Street salaries and bonuses have soared as investment banks peddled ever more profitable schemes that enabled Americans to take on debt -- an activity of no discernable social utility and, in fact, of some peril, but one that attracted a disproportionate share of our smartest college graduates, who clearly understood where the big money was. Reducing Wall Street's outsized incomes is not only a moral necessity, now that it's the public that will be putting up the funds but a national opportunity to redirect our best and brightest into actual productive enterprise.

There's no indication that Hank Paulson understands that. He is less Washington's man on Wall Street than he is Wall Street's man in Washington. And having endorsed the Street's version of socialism -- the American public picks up the tab for the financial sector's mistakes, no questions asked -- Paulson and the administration and the Republicans remain opposed to the more democratically socialist, or democratically capitalist, proposition that the public should get something for its investment. China, Singapore and the oil emirates cut a deal for their people. Why won't Hank Paulson cut one for his?

meyersonh@washpost.com

Paulson's Panic

By Robert J. SamuelsonWednesday, September 24, 2008; A23

Call it Paulson's Panic. That's both unfair and accurate. It's unfair because Treasury Secretary Hank Paulson didn't create the underlying conditions that led to today's financial turmoil, and the failure for not quelling it is shared by Federal Reserve Chairman Ben Bernanke. But it's also accurate, because as world financial markets verged on panic, Paulson himself panicked. He saw no remedy except a massive bailout: having the government buy up to $700 billion worth of risky bonds.

Historians will judge whether his outsized proposal was necessary, but the notion that its congressional enactment -- assuming that happens -- would magically end the crisis seems like wishful thinking. Americans often delude themselves that all problems can be "solved" if only government would act "boldly." This may be another example.

Contrary to much commentary, Paulson's plan would not be the largest government intervention in the private economy since World War II. That distinction still belongs to Richard Nixon's imposition of wage and price controls in August 1971. True, Paulson would socialize unprecedented amounts of private debt, but

Nixon asserted control over the entire economy. What's fascinating are the possible parallels between the two episodes, starting with a shared irony: Both came from administrations committed to "free markets."

When Nixon declared the wage-price freeze -- a complete surprise because he had consistently opposed controls -- the decision proved "wildly popular," Rice University historian Allen Matusow writes in his book "Nixon's Economy." By one survey, 75 percent of Americans supported it.

"There was widespread public rejoicing that at last the government was protecting the people," Herbert Stein, a Nixon economist, later observed. Consumer price inflation, which had been rising at a 4 percent annual rate, dropped toward 1 percent. People believed that by acting decisively government could outlaw inflationary psychology. It couldn't.

Inflationary pressures built up under the artificial lid of the controls. Moreover, the faulty economic doctrines that produced inflation -- easy-money policies aimed at maintaining "full employment" of 4 percent joblessness -- remained. When controls ended in 1974, inflation exploded to 12 percent. It averaged almost 9 percent from 1975 to 1981. Only the brutal 1981-82 recession, imposed by Paul Volcker's Fed and raising unemployment to 10.8 percent, ended the wage-price spiral.

Paulson argues that relieving banks of dubious mortgage-backed securities will "unclog" the financial system and encourage essential business and consumer lending. Maybe. It's true that these securities, because they cannot easily be valued, have created immense uncertainty. Banks and other financial institutions reduced routine lending to each other; everyone worried that the other bank might be in trouble. Having the Treasury buy these mortgage securities, on which losses have already been booked, might minimize these fears.

The trouble is that fears extend beyond mortgage securities. It wasn't just home mortgages that were bundled up into bonds and sold to institutional investors (pension funds, insurance companies, college endowments).

Auto loans, credit card debt and commercial real estate loans have been similarly packaged, $900 billion worth in 2007. Naturally, doubts about the value of these securities have also increased. "Securitization" may survive, but this lending is already down (80 percent in 2008), reports Thomson Reuters. Credit is tightening across the board; issuance of high-quality corporate bonds is down 22 percent, while riskier "high yield" bonds are down 65 percent.

What we are discovering is that all the complex securities, combined with ever-greater international investment flows, have created a global financial system "so arcane that few people can understand its workings," David Smick writes in "The World Is Curved: Hidden Dangers to the Global Economy." The difference between now and two years ago is that financial managers then thought they understood the system; now they know they don't. Ignorance breeds risk-aversion and fear.

Like wage-price controls, Paulson's plan is no panacea. Banks, hedge funds, private equity funds and others are trying to reduce risk by "deleveraging" -- selling stocks and bonds to raise cash, increase capital and cut their own debt. The rush to cash is a hallmark of financial crises. But what makes sense for one may be ruinous for all. Heavy selling depresses prices; lower prices then increase losses, deplete capital, prompt more selling and heighten fear. At best, Paulson's plan might preempt this spiral by allowing investors to unload their least attractive securities.

But it wouldn't automatically stimulate new lending, revitalize "securitization" or prevent more "deleveraging."

Time is needed. The rescue is being constructed so hastily that it may include all manner of flawed provisions: too much power for the Treasury secretary; authority for bankruptcy judges to modify mortgages. Congress faces a wrenching dilemma, imposed on it by financial markets and Paulson. If it dawdles, it may invite the panic that Paulson has brazenly predicted. But if it acts quickly, it may create a monster whose full implications emerge only with time.

Dear Iraqi Friends (Thonas Friedman on "the bailout")

By THOMAS L. FRIEDMAN

From: President George W. Bush

To: President Jalal Talabani of Iraq, Prime Minister Nuri Kamal al-Maliki, Speaker Mahmoud al-Mashadani

Dear Sirs, I am writing you on a matter of grave importance. It’s hard for me to express to you how deep the economic crisis in America is today. We are discussing a $1 trillion bailout for our troubled banking system. This is a financial 9/11. As Americans lose their homes and sink into debt, they no longer understand why we are spending $1 billion a day to make Iraqis feel more secure in their homes.

For the past two years, there has been a debate in this country over whether to set a deadline for a U.S. withdrawal from Iraq. It seemed as if the resolution of that debate depended on who won the coming election. That is no longer the case. A deadline is coming. American taxpayers who would not let their money be used to subsidize their own companies — Lehman Brothers, Bear Stearns and Merrill Lynch — will not have their tax dollars used to subsidize your endless dithering over which Iraqi community dominates Kirkuk.

Don’t misunderstand me. Many Americans and me are relieved by the way you, the Iraqi people and Army have pulled back from your own brink of self-destruction. I originally launched this war in pursuit of weapons of mass destruction. I was wrong. But it quickly became apparent that Al Qaeda and its allies in Iraq were determined to make America fail in any attempt to build a decent Iraq and tilt the Middle East toward a more democratic track, no matter how many Iraqis had to be killed in the process. This was not the war we came for, but it was the one we found.

Al Qaeda understood that if it could defeat America in the heart of the Arab-Muslim world, that it would resonate throughout the region and put Al Qaeda and its allies in the ascendant. Conversely, we understood that if we could defeat Al Qaeda in Iraq, in collaboration with other Arabs and Muslims, that it would resonate throughout the region and pay dividends. Something very big was at stake here. We have gone a long way toward winning that war.

At the same time, I also came to realize that in helping Iraqis organize elections, we were facilitating the first ever attempt by the people of a modern Arab state to write their own social contract — rather than have one imposed on them by kings, dictators or colonial powers. If Iraqi Shiites, Sunnis and Kurds can forge your own social contract, then some form of a consensual government is possible in the Arab world. If you can’t, it is kings and dictators forever — with all the pathologies that come with that. Something very big is at stake there, too.

It’s not the stakes that have changed. It is the fact that you are now going to have to step up and finish this job.

You have presumed an endless American safety net to permit you to endlessly bargain and dicker over who gets what. I’ve been way, way too patient with you. That is over. We bought you time with the surge to reach a formal political settlement and you better use it fast, because it is a rapidly diminishing asset.

You Shiites have got to bring the Sunni tribes and Awakening groups, who fought the war against Al Qaeda of Iraq, into the government and Army. You Kurds have got to find a solution for Kirkuk and accept greater integration into the Iraqi state system, while maintaining your autonomy. You Sunnis in government have got to agree to elections so the newly emergent Sunni tribal and Awakening groups are able to run for office and become “institutionalized” into the Iraqi system.

So pass your election and oil laws, spend some of your oil profits to get Iraqi refugees resettled and institutionalize the recent security gains while you still have a substantial U.S. presence. Read my lips: It will not be there indefinitely — even if McCain wins.

Our ambassador, Ryan Crocker, has told me your problem: Iraqi Shiites are still afraid of the past, Iraqi Sunnis are still afraid of the future and Iraqi Kurds are still afraid of both.

Well, you want to see fear. Look in the eyes of Americans who are seeing their savings wiped out, their companies disappear, their homes foreclosed. We are a different country today. After a decade of the world being afraid of too much American power, it is now going to be treated to a world of too little American power, as we turn inward to get our house back in order.

I still believe a decent outcome in Iraq, if you achieve it, will have long-lasting, positive implications for you and the entire Arab world, although the price has been way too high. I will wait for history for my redemption, but the American people will not. They want nation-building in America now. They will not walk away from Iraq overnight, but they will not stay there in numbers over time. I repeat: Do not misread this moment. God be with you.

George W. Bush.

A Bailout or a Bonanza?

By Eugene Robinson
Tuesday, September 23, 2008; A21



The uber-capitalists of Wall Street are all socialists now. Free- market ideology, it turns out, doesn't pay the mortgage. That appears to be a job for, ahem, Big Government.

Let's be clear about why we're facing a crisis that could pull down the global financial system. The irresponsibility of individuals who bought houses they couldn't quite afford pales in comparison with the irresponsibility of the financial wizards who built on those shaky mortgages a towering edifice of irrational faith. Someone in the government should have looked at all those trillions of dollars' worth of mortgage-backed securities and collateralized debt obligations and credit default swaps and demanded that Wall Street prove that all, or even most, of this purported money was real. But we're in the eighth year of the Bush administration; adult supervision left the building long ago.

Now that the whole highly leveraged structure is threatening to fall, some kind of government bailout is necessary and inevitable. But Congress shouldn't approve Treasury Secretary Henry Paulson's $700 billion rescue plan without insisting on some measure of equity and accountability.

See, neglecting such details as equity -- in both senses of the word -- and accountability is what got us here in the first place.

Congress should have learned by now what happens when this administration is given a blank check. Unlike the run-up to the Iraq war, at least this time there's a genuine emergency -- we came within a whisker of a financial meltdown last week, and we're still way deep in the woods. No one thinks that delay is an option.

Not Barack Obama, who introduced legislation in 2006 to address lax mortgage lending and in March proposed a new regulatory framework for the financial markets. Not John McCain, who has been all over the map. Within one week, McCain has gone from saying the "fundamentals of the economy are strong" to declaring that "we are in the most serious crisis since World War II."

But first we need to be convinced that Paulson's proposal -- have the government purchase the bad debt -- is the best thing to do. Not all economists believe it is, although it's true that if you put six economists in a room, they'll come up with seven sharply differing, strongly held points of view about the time of day. Assuming that Paulson's plan is deemed workable, the "details" yet to be worked out involve staggering amounts of money. Hedge funds apparently don't qualify for relief, but what about insurance companies that branched out into exotic mortgage-backed investments? What about foreign banks with big U.S. operations?

Clearly there has to be some definition of just who is covered, and there has to be some oversight. And now that the government has nationalized Fannie Mae and Freddie Mac, who's going to run those still-vital institutions? Who's going to run the giant insurance company AIG, which was effectively nationalized last week?

Maybe Congress can insert a provision that broadly insists on the principle of oversight and leaves the particulars to be worked out later. But it would be unconscionable for Congress to absolve a bunch of wealthy financiers of the consequences of their bad decisions and not do the same for homeowners who showed similarly poor judgment. Paulson has indicated his awareness that this is, indeed, an election year -- and that members of Congress are not eager to go home to their districts and explain why Wall Street's pooh-bahs get to keep their mansions and their yachts while working-class families lose their modest homes.

The more contentious issue is the idea, supported thus far mostly by Democrats on Capitol Hill, that there should be salary caps for executives of companies that take advantage of the government bailout. Paulson complains that this will provide a disincentive for companies to participate in the program -- whatever the program turns out to be -- but it seems to me to be a reasonable idea, and a winner politically.

Why shouldn't the executives who put their companies at risk by making unwise investments pay a price for their lack of prudence?

We can't just let the system collapse -- nobody wins in that event. But I thought one of the fundamental tenets of capitalism was a direct relationship between risk and reward. The Masters of the Universe who created this mess ought to share the pain of cleaning it up.

eugenerobinson@washpost.com