Posted on 04/15/2009 10:02:26 AM PDT by Lorianne
Goldman Sachs reports better-than-expected profits this quarter. Wells Fargo cleared record profits last week. The President, understandably, points to signs of hope and encourages Americans to be optimistic about the economy. But when do we move from healthy confidence to a confidence game? The banks are reporting profits thanks to massive infusions of taxpayer bailout funds. It's simply silly to be lulled by cheery-sounding reports when the institutions are actually insolvent. At some point we have to take a clear-eyed look at the massive failure of our financial system. Ignoring it won't make it go away.
That's more or less what Elizabeth Warren, the distinguished chair of the Congressional Oversight Panel, says in her panel's six-month report on the bank bailout. Warren, the government's watchdog, concedes that there are differences of opinion on her panel, which probably accounts for her very carefully couched discussion of the crisis. Although she told The Observer-http://www.guardian.co.uk/business/2009/apr/05/useconomy-regulators that it is "preposterous" that the government hasn't fired the bank managers who are responsible for the derivatives disaster, her panel's report is cautious, with a scholarly explanation of the crisis in her video introduction. Nonetheless, the underlying criticism is obvious.
In a financial crisis like the current one, Warren explains, the government has three choices: 1. Liquidate failed banks. (That's what happened in the S&L crisis. The government took over institutions, fired the managers, wiped out investors, but protected depositors. A lot of savings and loans simply went out of business.) 2. Put them in receivership. (That's what Sweden did in the 1990s: failed managers were fired and replaced, depositors were protected, and the banks were returned to private hands under new management with healthier balance sheets.) or 3. Subsidize the banks. This last option is what led Japan to its "lost decade"--the real value of bank assets are obscured, as the government funnels tax money into insolvent banks, propping them up indefinitely. This last is the approach the United States is now taking.
If you want to hear someone absolutely destroy that approach to the current crisis, check out a round of recent interviews with William Black, the professor of economics and law at the University of Missouri who was deputy director of the Federal Savings and Loan Insurance Corp. during the S&L crisis in the 1980s. Black, who liquidated a few banks in his time and earned the eternal enmity of Charles Keating, minces no words in describing the massive fraud by bankers and the regulators, including Treasury Secretary Tim Geithner, whom he describes as abetting them.
"This whole bank scandal makes Teapot Dome look like some kind of kids' doll set," Black told the investors' journal Barron's in an interview published in the print edition on April 13. (The interview appeared online on April 9, but you need a paid subscription to access the site). He covers the same points in a highly watchable interview on Bill Moyer's Journal..
"We have lost the ability to be blunt," Black tells Barrons. He is talking about the person he describes to Bill Moyers as a "failed regulator," Geithner. "Now we have a situation where Treasury Secretary Tim Geithner can speak of a $2 trillion hole in the banking system, at the same time all the major banks report they are well capitalized. And you have seen no regulatory action against what amounts to a $2 trillion accounting fraud. The reason we don't see it--aren't told about it--is that if they were honest, prompt corrective action would kick in, and then they would have to deal with the problem banks."
In other words, the banks are insolvent. That's why they must rely on the Troubled Assets Relief Program. But at the same time, they are claiming to be healthy. Both things can't be true.
So we get smiley-face reports about how Goldman and Wells Fargo are posting record profits. Investors and citizens are supposed to be excited to see those profit numbers--comprised of their own tax dollars plus the banks refusing to accurately value their toxic assets.
This is more than an unfortunate downturn, Black says. It is the result of massive, pervasive fraud, and a deregulatory culture that has nurtured criminal behavior by very highly paid bank executives.
The whole culture is rotten. And the regulators come right out of that corrupt, Wall Street culture.
"No one has to tell someone to stretch the numbers," Black says of the way corruption trickles down through these institutions. "It is all around them. It is in the rank-or-yank performance and retention systems advocated by top business executives. Here, the top 20 percent get the bulk of the benefits and the bottom 10 percent get fired. You don't directly tell your employees to lie or cheat. You set up an atmosphere of results at any cost."
Yet we live in a broader culture so enamored of the money-making magicians of Wall Street that a front-page story in the Sunday New York Times is still lamenting the "brain drain" on Wall Street. The lead anecdote features former UBS employee (whose firm's major screw-ups turned it into a prime TARP welfare recipient). He is so disturbed by shrinking bonuses and a climate of gloom in his old gig that he has moved to the high-rolling Aladdin Capital. That's the real name. As in Poof! There goes your money!
It's time for real regulation to stop all this, says Black. Geithner must go.
"Unless the current administration changes course pretty drastically, the scandal will destroy Barack Obama's presidency," he predicts.
The beauty part: real regulators will have no trouble getting through Congress, Black tells Moyers, because they pay their taxes.
“Unless the current administration changes course pretty drastically, the scandal will destroy Barack Obama’s presidency,” he predicts. - In your wildest dreams...
MSM will never let that happen.
He’s “too big to fsil”./
For your pinglists.
bookmark
And yet at the same time he’s an epic fail.
Multi-angle, high definition videotaped torture of children would not bring down a “black” Democrat in the United States right now.
In other words, plan on four years of BO, regardless of how badly he &%$#s up.
>...the banks are insolvent. That’s why they must rely on the Troubled Assets Relief Program. But at the same time, they are claiming to be healthy. Both things can’t be true.<
in the early 1990’s i called “the progressive” and told them that they should change their name to “the reactionary”.
they hung up on me.
it is "preposterous" that the government hasn't removed from office the bank oversight committee members who are responsible for the lack of oversight in derivatives disaster.............
As long as the media is running interference for the usurper, nothing is going to bring him down.
Too big to fizzle? :)
I guess it’s time for me to get on down to the eye doctor for another exam.
The banks and aig are too big to save! They are taking us into a DEPRESSION!
$1.14 quadrillion get a load of this!
No, that’s not a made up word. A quadrillion is one thousand trillion dollars. Not $4 trillion, but $1000 trillion – and change.
Here’s the breakdown, according to the International Bank of Settlements, which acts as banker for the world’s central banks:
1) Listed credit derivatives stood at USD 548 trillion;
2. The Over-The-Counter (OTC) derivatives stood in notional or face value at USD 596 trillion and included:
a. Interest Rate Derivatives at about USD 393 + Trillion;
b. Credit Default Swaps at about USD 58 + trillion
c. Foreign exchange derivatives at about USD 56 + trillion;
d. Commodity Derivatives at about USD 9 trillion;
e. Equity Linked Derivatives at about USD 8.5 trillion; and
f. Unallocated Derivatives at about USD 71+ trillion.
World derivative debt is $1.14 Quadrillion USD. For the US banks share of that see Table 1, page 22 of 33 at
The jig is up folks. The US banks are essentially bankrupt, with $10.5 trillion in assets vs. $176 trillion in derivative debts.
G20 world leaders should WRITE OFF this toxic speculative derivative ‘debt’.
Put in further perspective, the entire world’s GDP, according to the CIA’s world book, is $71 trillion USD annually. Compare that with that $1.14 quadillion and you now understand that a huge transfer of wealth is taking place, crowding out legitimate recovery efforts.
http://bluelori.blogspot.com/2009/04/all-hail-government-sachs.html
Did you read the article?
He’s their creation.
‘Bailout Watchdog’ Elizabeth Warren: More Accountability Needed From Bailed-Out Banks
http://freerepublic.com/focus/f-news/2229704/posts
He hasn't watched much of recent history regarding Democrat politicians, has he? Democrats are above the law.
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