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.
I won't condemn the board's decision to pay the SOB so much, but I'll be damned if I'll defend it either.
Let the recipients of all that dough defend it themselves.
“Hazett’s Man vs welfare state described exactly how governments become tyrannical”
.
You can download a free pdf at:
http://mises.org/literature.aspx?action=author&Id=170
I meant Hazlitt
So this man is a Black who talking a about a Black President and his team as failures? Whoaa!! Janet?
I see what you mean
This “Public Broadcaster” had $54 million in revenue! Pretty good huh?
Well if you are a director or exec it gets better. They had something like 8 or 9 of them earning $300,000 salaries!!!
There ain't no company in the private sector with those revenues that have that many people making that kind of loot.
They also had a huge line item related to expense for travel and other things.
Know legible government and private types have been aware of the ever expanding problem for years if not decades. The level of corruption and incompetence in both sectors is beyond belief and has now reached levels where it is irreparable. If the true extent of the mess were made public then then the resultant chaos would not only collapse the economy but the country as well. Therefore, they can only prop it up here and there and postpone the inevitable which they know is coming.
Just a thought.
*giggle*
The administration is right on course and Obama is backing Geithner’s massive fraud because it is part of his plan. It won’t destroy his presidency, it will destroy the USSA, which is the goal.
Of course, this is what happens when your boyz are in the Treasury looting the government TARP funds and getting their hedges paid off by CDS payments from AIG.
yes.
that’s where i picked up the quotation from the article.
“fsil”
Does that stand for “Fiscal Stimulus Isn’t Legal?”
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.