Category Archives: Financial Crisis

About the Plan

Posted on by

The Timothy Geithner financial rescue plan has been released. I’ve been cruising around look for people who understand the financial sector for comments.

Consensus: Yeah, right.

The most optimistic analysis is Brad DeLong’s, here updated in a post titled “I Think Paul Krugman Is Wrong.” Professor DeLong admits he is uncomfortable disagreeing with Professor Krugman, however. Professor Krugman’s column today was written before all the details were released, but he is opposed to the parts of the plan released earlier. Economist’s View has a roundup of reactions from economists, most of them pessimistic.

No one on the blogophere, Left or Right, is happy about it. Of course, the Right wouldn’t like anything Obama does, meritorious or not, so there’s no point reading them. But the Left generally is in agreement with James K. Galbraith at Washington Monthly, who writes, “Geithner’s banking plan would prolong the state of denial.”

The big concern, expressed by many, is that when Geithner’s plan flops (as most predict it will) President Obama will have lost the political capital necessary to do what really needs to be done, which is nationalize the bleepers.

Are We Depressed Yet?

Posted on by

Brad DeLong has a Geithner Plan FAQ that makes it sound as if it could work, although Professor DeLong’s still appears to be a minority view. Paul Krugman responds to DeLong and says he’s not buying it.

Frank Rich says, in effect, that Obama’s attempts at communication are fine, but the financial team has way too many ties to the old Wall Street boy’s network and is not going nearly far enough to overhaul the system. I cannot argue with that.

Tom Friedman wrote a reasonably perceptive “pox on both their houses” column that some rightie bloggers are selectively quoting as a slam on Barack Obama and the Democrats. But no, Friedman is pissed at everyone. So for the record, here is a paragraph the right-wing bloggers did not quote:

I saw Eric Cantor, a Republican House leader, on CNBC the other day, and the entire interview consisted of him trying to exploit the A.I.G. situation for partisan gain without one constructive thought. I just kept staring at him and thinking: “Do you not have kids? Do you not have a pension that you’re worried about? Do you live in some gated community where all the banks will be O.K., even if our biggest banks go under? Do you think your party automatically wins if the country loses? What are you thinking?”

Thinking? Who’s thinking? Anyway, a number of rightie bloggers gleefully link to Friedman’s column as evidence that Obama is failing, which is what they are rooting for. Their side wins if he loses, you know.

See also Comments From Left Field.

What’s It All About

Posted on by

From Matt Taibbi’s latest article at Rolling Stone:

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers. …

…So it’s time to admit it: We’re fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we’re still in denial — we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream.

Well, yeah.

Although I might quibble with some details, I think on the whole Taibbi gets to the core of the matter better than most. His article also made me think of the Harper’s article by Thomas Geoghegan I mentioned last week, “Infinite Debt,” which you can now read online in PDF form. [Oops, it appears the PDF is available only to subscribers. Sorry.] In a nutshell, the financial sector has eaten the other sectors, and our national wealth has been hijacked into a vast scheme of money chasing money. Less and less of our wealth is being used to create tangible things like food or consumer products; more and more is plowed into financial investment instruments that are, basically, air.

And ordinary citizens have been sucked into a treadmill of debt bondage. I keep thinking of that old Tennessee Ernie Ford song —

You load sixteen tons, and what do you get?
Another day older and deeper in debt.
Saint Peter, don’t you call me, ’cause I can’t go;
I owe my soul to the company store.

Maybe we didn’t see all of the details, but many of us have been viewing the bigger picture for some time. We unhappy few are called “liberals,” and of course nobody listened to us.

What’s remarkable is the degree to which apparently intelligent people still don’t see the bigger picture. These include, unfortunately, the Obama Administration, which appears to be in tweak rather than overhaul mode.

Not to say he is “apparently intelligent,” because he isn’t, but much of What’s Wrong With America is exemplified by the meathead anchor, CNBC’s Mark Haines, interviewing Rep. Brad Sherman (D-CA) in this video:

So to Power Tool John’s question, “Are We a Banana Republic?” I’d say yes, and for some time, but not for the reasons he thinks.

And you want to know how we gave it all away? Memory Lane time —

[Video no longer available, but I believe it showed Ronald Reagan claiming government is the problem.]

The disconnect in Saint Ronald’s thinking was that government is not a hindrance to self-government. It is the very tool the founders left us that enables self-government. By persuading people that government is irrelevant, Saint Ronald enabled the colossal power grab that is strangling our country. Forget the Road to Serfdom; we’re serfs already, and have been for years.

Public Stocks

Posted on by

Josh Marshall has a point —

This seems like just another example of perverse outcomes from the ‘worst of both worlds’ approach we’re taking to the whole finance industry bailout — keep the same people in charge of the institutions, keep effectively insolvent institutions afloat, but throw a lot of federal dollars in their direction and put in place fairly draconian tax provisions for money that’s spent in ways we find either wasteful or offensive.

stockWell, yes, probably. People are enraged, and their rage is focused on only a small number of those who are responsible for what’s gone wrong. Indeed, some of the people being penalized probably were not involved personally.

On the other hand, sometimes we human have to act our what we feel. This is why there are rituals, religious and otherwise. An individual may feel helpless, but if he can get together with a lot of other people to make a display of strength, he feels empowered. This is true even if the display of strength is just theater, just ritual. Right now, I think many Americans feel a need for a punishment ritual. The people who mishandled the financial sector may never see a day in prison, or in the stocks, or experience any sort of genuine deprivation. But a public shaming of somebody would at least make us feel better.

On the other hand, the public shaming shouldn’t be policy. Policy needs to be a genuine remedy, not a ritual. Whether they deserve to be punished or not, punishing the AIG bonus babies isn’t going to solve anything.

On the third hand — appearances matter. This is what Eugene Robinson wrote about today.

There has been a steady flow of news indicating that Wall Street doesn’t realize that the Era of Excess is over, the latest coming yesterday with a Bloomberg News report that the CEO of troubled Citigroup, Vikram Pandit, plans to spend about $10 million redecorating the firm’s executive offices. I know that the company has made economies and that Pandit is working for $1 a year. I just think that after accepting $45 billion in bailout money, I’d cancel any improvement project that couldn’t be accomplished with a trip to Home Depot.

It’s as if we’re dealing with a puppy who will not stop making puddles on the kitchen floor. Whenever I hear of another Wall Street exec who doesn’t “get it,” I want to whack him with a rolled up newspaper. (I wouldn’t do that to a puppy, mind you.)

Anyway, back to what Josh was saying — I agree with Charlie Cray that we should stop messing around with the bozos who caused the problem, and instead “put AIG into full receivership and break it up.” That’ll learn ’em. See also Simon Johnson and James Kwak, “Off With the Bankers,” in the New York Times.

Congress Does Something

Posted on by

The House actually did something. Reuters reports,

Responding to public and political outrage to the bonuses after the insurer received a government bailout up to $180 billion, lawmakers voted 328-93 for a bill to impose a 90 percent tax on bonuses for executives whose incomes exceed $250,000.

The tax would apply to executives of any company that received at least $5 billion in government bailout money.

From the Associated Press:

In all, 243 Democrats and 85 Republicans voted “yes” on the bill. It was opposed by six Democrats and 87 Republicans. . . . although a number of Republicans cast “no” votes against the measure at first, there was a heavy GOP migration to the “yes” side in the closing moments.

The six Dems who voted “no” were Bean, Kissell, McMahon, Minnick, Mitchell and Snyder. If any of those congress critters are your’n, tell ’em what you think.

As I keyboard, the 85 Republicans who voted “yes” are drafting a letter of apology to Rush Limbaugh.

At the Washington Post, Brady Dennis writes about the bonus babies of AIG, huddling in their office building feeling misunderstood.

The handful of souls who championed the firm’s now-infamous credit-default swaps are, by nearly every account, long since departed. Those left behind to clean up the mess, the majority of whom never lost a dime for AIG, now feel they have been sold out by their Congress and their president.

“They’ve chosen to throw us under the bus,” said a Financial Products executive, one of several who spoke on condition of anonymity, fearing reprisals. “They have vilified us.”

They say what is missing from this week’s hysteria is perspective. The very handsome retention payments they received over the past week were set in motion early last year when the firm’s former president, Joe Cassano, was on his way out the door. Financial Products was already running into trouble on its risky credit bets, and the year ahead looked grim. People were weighing offers from other firms, and AIG executives feared that too many departures could lead to disaster.

I remember reading that Marie Antoinette had a new dress made to wear at her beheading. That may not be true, but for some reason it pops into my mind.

Listen, guys, “disaster” has already arrived. The ship has struck the iceberg. Just because the water hasn’t reached the upper decks yet doesn’t mean life can go on as usual. It’s time to put down the brandy and cigars and work with the rest of us to keep the boat afloat, or else we’re all going to end up in the water grabbing for ice floes. Is that clear?

Analogies

Posted on by

Steve M has a great analogy in the title of a recent post — “AIG is to righties’ economic theories what George W. Bush is to their political theories.” So true.

Of course, as Steve says, to righties nothing is ever the fault of rightie ideology. In many ways George W. Bush was more Reaganite than Reagan, but as soon as he became overwhelmingly unpopular the Right suddenly discovered Bush was not a “real conservative.” Just so, in their minds the financial sector gurus who drove the economy off a cliff are traitors to free market theory, not the naturally selected consequence of it.

More fascinating — Greg Sargent reports that rightie politicians and rightie media are going separate ways on the AIG scandal.

GOP Congressional leaders have roundly condemned AIG and its executives, as part of a strategy to position themselves as heroic defenders of the taxpayers and to paint the Obama administration as weak and ineffectual. … But increasingly, leading conservative media figures are moving in a different direction: Defending AIG.

Rush Limbaugh recently said: “I am all for the AIG bonuses” and attacked the Obama administration for trying to undo them. He also blasted Dem efforts to get the names of the AIG bonus recipients as “McCarthyism.”

Fox News followed suit, also comparing Dems to “Joe McCarthy.” And Sean Hannity has now derided efforts to tax the execs by saying: “In other words, we’re going to just steal their money.”

If you were a Faux Nooz viewer, exactly how stupid would you have to be to agree with Hannity?

It gets better. Today there’s a story that the House plans to slap a 90 percent tax on the bonuses. Actual title of a Michelle Malkin post in response: “First They Came for the AIG Bonuses.” You can’t make this up.

As I said, this is fascinating; the sort of thing social psychologists ought to be studying. Put the Right under a bell jar, or better yet, on a dissecting table.

We Are Really, Really Angry

Posted on by

Welcome to another episode of AIG: The Outrage. People are angry! They are really, really angry! They are starting to remind me of Mr. Furious, Ben Stiller’s character in Mystery Men. Which is a pretty good film, btw. If you’ve never seen it, add it to your Netflix queue.

Anyway, being angry is so de rigueur in Washington right now that even Edward Liddy, CEO of AIG, is angry. CNN reports that Liddy is expected to tell Congress today, “We are meeting today at a high point of public anger. I share that anger.” That’s one hell of a bandwagon effect.

Public discussion is devolving into anger correctness. Mo Dowd says President Obama is not angry enough. On the other hand, Ruth Marcus of WaPo thinks Obama is way overdoing the anger. Clearly, we need an Emily Post-type arbiter of what’s appropriate, anger-wise.

David Stout reports for the New York Times that there is an outpouring of anger on the Hill today. I’d turn on CSPAN, but I’m afraid my television set would melt.

It’s not so clear to me that anything will have changed after all the public displays of anger are done and everyone goes home for a nap.

In their defense, AIG’s management team explained that they asked employees last year to go without their bonuses, and the employees said, take a hike. So AIG execs were helpless. They had to pay out those bonuses. I’m sure they are angry about it.

As for politicians, I’ve seen news stories saying the feds knew for months that bonuses would be paid, and others saying they were caught by surprise. Whatever. I just want to know what they’re going to do now, other than be really, really angry about it.

Chaos and Opportunity

Posted on by

Seems to me the outrage over the AIG bonuses presents an opportunity. If the feds are ever going to nationalize failing financial institutions, now would be the time to do it. The public will understand.

Unfortunately, what this episode shows us is that the Obama Administration is being much too cautious — or much too something — in dealing with the financial crisis. Let us not be weenies, Mr. President. Although the President may be, as Glenn says, “sounding the right note,” talk ain’t gonna cut it.

See also the Talking Dog and Balkinization.

Nothing’s Too Big to Fail

Posted on by

AIG execs don’t want to talk about the bonuses they continue to pay themselves, but they did release a list of the banks and financial institutions that received federal bailout money through AIG. This is, I assume, their way of saying they are putting most of the money to good use.

Still, what about those bonuses? Robert Reich said,

Had AIG gone into chapter 11 bankruptcy or been liquidated, as it would have without government aid, no bonuses would ever be paid; indeed, AIG’s executives would have long ago been on the street. And any mention of the word “talent” in the same sentence as “AIG” or “credit default swaps” would be laughable if it laughing weren’t already so expensive.

More significantly,

Apart from AIG’s sophistry is a much larger point. This sordid story of government helplessness in the face of massive taxpayer commitments illustrates better than anything to date why the government should take over any institution that’s “too big to fail” and which has cost taxpayers dearly. Such institutions are no longer within the capitalist system because they are no longer accountable to the market. So to whom should they be accountable? When taxpayers have put up, and essentially own, a large portion of their assets, AIG and other behemoths should be accountable to taxpayers. When our very own Secretary of the Treasury cannot make stick his decision that AIG’s bonuses should not be paid, only one conclusion can be drawn: AIG is accountable to no one. Our democracy is seriously broken.

Put another way, AIG already has failed. The question in front of us is not whether AIG should be “allowed” to fail, but what role government should play in softening the broad economic fallout of the failure. It’s not about rescuing AIG, but about rescuing everybody else. It may be that propping up AIG somehow is a sensible move, but the execs who took it into failure need either to be removed or made to understand that they are no longer in charge, and everything they do is now open to public scrutiny.

There is talk of a “bailout backlash.” Showing the AIG execs the door would be a hugely popular move right now, I think, and would reassure the public — well, that part of the public that thinks, as opposed to the brainless part — that the Obama Administration isn’t just throwing good money after bad.

Paul Krugman has some interesting comments about the financial crisis in Europe. In a nutshell, Europe is facing the same financial meltdown, but it’s doing even less than we are to deal with it.

Europe’s economic and monetary integration has run too far ahead of its political institutions. The economies of Europe’s many nations are almost as tightly linked as the economies of America’s many states — and most of Europe shares a common currency. But unlike America, Europe doesn’t have the kind of continentwide institutions needed to deal with a continentwide crisis.

This is a major reason for the lack of fiscal action: there’s no government in a position to take responsibility for the European economy as a whole. What Europe has, instead, are national governments, each of which is reluctant to run up large debts to finance a stimulus that will convey many if not most of its benefits to voters in other countries.

Strictly speaking, Europe is not a confederacy, but in some ways it acts like one. Confederacies of sovereign states have a long track record of quickly crumbling apart. Sometimes “big government” is a big advantage.

Update: Josh Marshall writes,

What’s really driving this forward — and what makes it such a dangerous moment for the White House — is the jarring image of the administration’s impotence.

Secretary Geithner found out about the bonuses. He told AIG CEO Edward Liddy it wouldn’t fly. And Liddy, in a curiously imperial letter, tells Geithner that much as he is pained by the situation — to blow it out his ass. Which he apparently proceeded to do.

I think the Obama Administration needs to take this situation in hand before public support for the President’s economic policies melts away.