Stocks and Precious Metals Charts - The Fall of the Republic - The Oligarchy Is Audacious

 

"According to several reports, the administration is considering Michael Barr for the vice chair of supervision slot.  Barr is a veteran of the Clinton and Obama years who is now the Sanford Weill Dean of Public Policy at the University of Michigan.  (Weill was the former CEO of Citigroup, whose merger with Travelers Insurance triggered the end of Glass-Steagall and the beginning of the mega-bank era.)

As assistant Treasury Secretary for financial institutions in the Obama years, Barr was the key right-hand man to Tim Geithner and liaison with Congress on the Dodd-Frank reforms.  Sheila Bair wrote considerably in her memoir of that time about how Barr defended the financial industry from aggressive regulation at every turn, seeking to eliminate strong derivatives regulations, weaken the Volcker Rule that attempted to prevent banks from engaging in risky trading with customer money, and preserve the ability for future bailouts.  He infamously gave the quote to New York magazine that the bill could have broken up big banks if Treasury had agreed to it, but they decided against it.

Barr was also the lead designer of HAMP, the failed foreclosure mitigation program that allowed banks to trap borrowers in predatory schemes.  Barr kind-of sort-of apologized for the failure to stop the foreclosure wave in a 2020 book, saying that the White House should have “acted more forcefully from the start.” He also led the investigation into fraudulent evictions with phony documents, promising things would change within a year. (They didn’t.)"

David Dayen, The Return of Michael Barr


"Impunity is epidemic in America. The rich and powerful get away with their heists in broad daylight. When a politician like Bernie Sanders calls out the corruption, the New York Times and Wall Street Journal double down with their mockery over such a foolish 'dreamer.'   The Journal recently opposed the corruption sentence of former Virginia governor Bob McDonnell for taking large gifts and bestowing official favors — because everybody does it.  And one of its columnists praised Panama for facilitating the ability of wealthy individuals to hide their income from 'predatory governments' trying to collect taxes.  No kidding.

Our major institutions, the ones that should know better, are often gross enablers of impunity.

Jeffrey Sachs, The Age of Impunity, 2016

 

The wiseguys wanted to take stocks up today in a risk on wash cycle, but the bombshell miss by Netflix broke the script, and weighed heavily on the big cap tech stocks.

These are, as you may recall, once again the bloated heart of a 'new era' stock bubble.

Gold and silver bounced.

The Dollar fell back hard from 101 but managed to hang on to the 100 handle fairly well.

A strong Dollar hurts the real economy, but does well for the financiers who can buy up foreign assets on the cheap.

The VIX fell in the spirit of a wash cycle attempt.

This will end.  But it is going to end badly for many. 

You know what to do. It is the same in every age.

But we are such faithless cheats and swindlers that we convince ourselves that we do not, because we do not wish to do what we have been told to do, what has been written on our hearts. 

Greed and pride kill.  But love covers a multitude of sins.

And the band played on.

Have a pleasant evening.

Some Wisdom About Leadership From the Depths of the Depression

"Management is doing things right; leadership is doing the right things."

Peter Drucker

In other words, management is about the process of organization. A manager may be a great organizer, but a terrible leader. Management is an essential skill. But it lacks traction in times of great change.  Management will almost always choose what is expedient, but a leader will do what is both practical from within a set of choices that are right.   Superior management skills in the hands of the efficiently immoral, or even amoral, can create a hell on earth.

Leadership is about the substance, the overwhelming sense of what is wrong and what is right based on set of principles that can energize a people to accomplish goals greater than the sum of their parts. The vision of a leader can guide a people through a time of change and turmoil, where the tradeoffs are not clear, and in dispute. Leadership is not possible without a dedication to a set of principles that transcend mere operational goals. 

Goals must be joined together in a coherent manner. To merely state that our goals are low inflation and high employment are not sufficient.  How do they complement one another?  From whence do they derive?  How are priorities to be set between them?

And above all, leadership is more than a title, and power, and high pay.  A leader must have a natural empathy and affinity with those whom they lead, and that concern must be closely aligned and apparent.  They understand the worries and concerns of their people, and more importantly can speak directly to them with not only words but action. Leadership sets an example, and adheres to a set of principles greater than itself.  If the principles are worthy, and the strategy well thought, and the management sound, then the chances of success are good.

The social safety net is certainly important, in that it keeps individuals and families from falling into tragedy and despair because of our no-longer-so-recent financial dislocation.

However, direct government assistance is best as a temporary salve to a problem, especially a natural disaster.  It is not effective as a permanent state of affairs.

The great shortcoming of the liberal economists has been to ignore those conditions which have caused the ongoing financial crisis, which has been ebbing and flowing since at least 2001.   By the way and in their defense, the greater failure of their adversaries or counterparties is to address themselves fruitfully to the problems and conditions of the real world, rather than a world of top down idealisms and slogans of their own creation.  The liquidationists and austerians seek to create a clean slate by blowtorching the landscape of those things that offend their purely intellectual sensibilities, and the victims be damned.

Adding stimulus to a system that is broken only produces more of what has gone before, because the situation has not changed sufficiently to restore the economy to balance, to an equitable distribution of its growth in both profits and wages.

Thanks to Pam Martens for reminding us of that prescient speech by Franklin Roosevelt, delivered in the depth of the Great Depression, about the need for leadership and new ideas, especially those of progressive reform. Memo to Fed: Interest Rates Are a Sideshow; the Problem is Income Inequality Her essay rightly takes the Fed to task on their trickle down approach to The Recovery™ which is inexcusable in a monetary authority which is also a major banking regulator and economic policy influencer. 

The problem is not so much the inequality itself. No, the problem is in a corrupt system that routinely gives the upper hand to powerful private organizations in formulating political and policy decisions in the halls of Congress and the Courts.  Over time this transforms the economy into a machine for transferring wealth from the public to the Banks, and the corporations that have sprung up around them.

The problem is not so much the inequality, but the corruption of a system intended to reward productivity with a similar amount of benefits for labor as afforded to those who organize it, for the benefit of all.   This is the difference between market capitalism, where labor is fairly compensated, and slavery.  

And it is the proper role of government to address the imbalances of power amongst its various constituents to maintain equal protection, as much as it is the role of government to guard against incursions of the powerful from abroad.

And when government falls into this trap of corruption by private power, the solution is not to further diminish government, giving even more free reign to private power. The solution is to reform and restore balance between public and private interests.

Where power in an economy falls into such an imbalance, and concentrates in fewer and fewer hands, that society will find itself increasingly trying to remain standing on a two legged stool, held up increasingly by more fraud and more force, and the steady erosion of justice and the rule of law.

"I believe that the recent course of our history has demonstrated that, while we may utilize their expert knowledge of certain problems and the special facilities with which. they are familiar, we cannot allow our economic life to be controlled by that small group of men whose chief outlook upon the social welfare is tinctured by the fact that they can make huge profits from the lending of money and the marketing of securities--an outlook which deserves the adjectives 'selfish' and 'opportunist.'

You have been struck, I know, by the tragic irony of our economic situation today. We have not been brought to our present state by any natural calamity--by drought or floods or earthquakes or by the destruction of our productive machine or our man power. Indeed, we have a superabundance of raw materials, a more than ample supply of equipment for manufacturing these materials into the goods which we need, and transportation and commercial facilities for making them available to all who need them. But raw materials stand unused, factories stand idle, railroad traffic continues to dwindle, merchants sell less and less, while millions of able-bodied men and women, in dire need, are clamoring for the opportunity to work. This is the awful paradox with which we are confronted, a stinging rebuke that challenges our power to operate the economic machine which we have created.

We are presented with a multitude of views as to how we may again set into motion that economic machine. Some hold to the theory that the periodic slowing down of our economic machine is one of its inherent peculiarities--a peculiarity which we must grin, if we can, and bear because if we attempt to tamper with it we shall cause even worse ailments. According to this theory, as I see it, if we grin and bear long enough, the economic machine will eventually begin to pick up speed and in the course of an indefinite number of years will again attain that maximum number of revolutions which signifies what we have been wont to miscall prosperity, but which, alas, is but a last ostentatious twirl of the economic machine before it again succumbs to that mysterious impulse to slow down again.

This attitude toward our economic machine requires not only greater stoicism, but greater faith in immutable economic law and less faith in the ability of man to control what he has created than I, for one, have. Whatever elements of truth lie in it, it is an invitation to sit back and do nothing; and all of us are suffering today, I believe, because this comfortable theory was too thoroughly implanted in the minds of some of our leaders, both in finance and in public affairs...

No, our basic trouble was not an insufficiency of capital. It was an insufficient distribution of buying power coupled with an over-sufficient speculation in production. While wages rose in many of our industries, they did not as a whole rise proportionately to the reward to capital, and at the same time the purchasing power of other great groups of our population was permitted to shrink. We accumulated such a superabundance of capital that our great bankers were vying with each other, some of them employing questionable methods, in their efforts to lend this capital at home and abroad.

I believe that we are at the threshold of a fundamental change in our popular economic thought, that in the future we are going to think less about the producer and more about the consumer. Do what we may have to do to inject life into our ailing economic order, we cannot make it endure for long unless we can bring about a wiser, more equitable distribution of the national income.

It is well within the inventive capacity of man, who has built up this great social and economic machine capable of satisfying the wants of all, to insure that all who are willing and able to work receive from it at least the necessities of life. In such a system, the reward for a day's work will have to be greater, on the average, than it has been, and the reward to capital, especially capital which is speculative, will have to be less. But I believe that after the experience of the last three years, the average citizen would rather receive a smaller return upon his savings in return for greater security for the principal, than experience for a moment the thrill or the prospect of being a millionaire only to find the next moment that his fortune, actual or expected, has withered in his hand because the economic machine has again broken down.

It is toward that objective that we must move if we are to profit by our recent experiences. Probably few will disagree that the goal is desirable. Yet many, of faint heart, fearful of change, sitting tightly on the roof-tops in the flood, will sternly resist striking out for it, lest they fail to attain it. Even among those who are ready to attempt the journey there will be violent differences of opinion as to how it should be made. So complex, so widely distributed over our whole society are the problems which confront us that men and women of common aim do not agree upon the method of attacking them. Such disagreement leads to doing nothing, to drifting. Agreement may come too late."

Franklin D. Roosevelt, Address at Oglethorpe University, May 22, 1932

The Stock Market in Context with the Great Crash of 1929 - 1932

The US Stock Market Crash of 2007 - 2010 expressed in percent decline from the market top in October 2007.



A trading day by trading day comparison of the Great Crash of 1929 - 1932 with the current market decline from its October 2007 top.



The classic profile of a collapsing bubble.



The economic policy of the early post-Crash period was heavily influenced by what was later called Liquidationism epitomized by prevailing views of the Hoover Administration. The idea was that allowing companies and banks to fail as quickly as possible, in a relatively uncontrolled manner, was the appropriate response. This view is still held by the Austrian School of economics.

The flaw in this theory would seem to be that the decline of a crash is not like a natural decline in a business cycle or a severe demand contraction, but the result of a precipitous collapse from a Ponzi-like monetary and credit expansion.

One can argue this point, endlessly if they wish to ignore history and economic reality, but again we need to remember that the outcome in several other nations embracing this theory was the rise of militant, fascist political regimes in response to societal dislocations.

Obviously the best cure is prevention, in not allowing monetary bubbles in the first place. Duh. But one has to play with the cards in one's hand, and not the hand they wish to have.

But there is a lesson in this for our current 'cure' in that blowing yet another asset bubble from a monetary expansion, and little else, will not work. We ought to have learned this from the Fed's policy responses in 2003-2006 which led to the US housing bubble.

Systemic reform and rebalancing is absolutely essential to a sustained economy recovery, and needs to be measured by an increasing median wage and a reversion to manageable income - debt ratios.

The headwinds against this remedy from an outsized financial sector that in many cases has coopted the political process makes a sustained economic recovery less probable without a significant shock to the political and economic structures of the US at least.



Bernanke's wager

Being a student of economic history, Ben Bernanke believes that he can inflate the currency subtly without a formal devaluation, and avoid a second leg down to a deeper bottom.

The Fed is now confident, with the Volcker era inflation experience under their belts, that they do not need to replicate the NY Fed policy error of the 1931 by increasing nominal interest rates prematurely out of inflationary concerns.

Things ARE somewhat different today, in that there is no gold standard, and the world has relatively free flows of fiat capital under a US dollar reserve currency schema.

It should be noted, with no mistake, that the limiting factor on the Fed is the valuation of the US dollar and its sovereign. In 1931 the limiting factor was the gold standard which severely limited the Fed's options, and eventually caused a significant formal devaluation of the US dollar in a step-wise function.

In a fiat regime the devaluation can be done gradually without fanfare.



It is also easy to forget that in 1931 the business community and the leading economists were convinced that the worst was over and that a recovery was underway. Their concerns shifted to inflation, and dealing with the then unprecedented expansion of narrow money in the adjusted monetary base to ease short term credit problems.



The 'risk' is obviously that the analog with the Fed's experiment with subduing inflation in the 1970's under Volcker are not completely consistent to the environmental context today.

The levels of US debt to be absorbed by the rest of the World are without known precedent. And the degrees of freedom in the Fed's calculation are significantly impacted by the policy actions of countries that may be sympathetic but not completely consistent with their own national self-interest or inclinations.

From our own viewpoint, without signficant structural reforms to the US economy and political process, which at this time seem unlikely to overcome the resistance of the status quo, the Fed's actions will most likely result in another type of bubble, less obvious than the last two perhaps, and a stagflationary economic recovery of a sort combing some of the nastier aspects of the Japanese experience, but with a nasty dose of the post-Soviet / Argentinian slumps.

A deflationary envionrment with a stronger US dollar appears to be a fantasy in our opinion, although we have always held it to be possible. Of course it is possible. If the Fed raised short term rates to 22 percent tomorrow, we would see a serious deflation and a stronger dollar.

We would also see riots and civil insurrection in response. This is another limiting factor on the policy decisions of the Fed and the Administration, which people tend to underappreciate, again ignoring many of the social and political events of the 1930's.

The US dollar will continue to decline until there is a precipitating currency crisis that clears the market for US debt. Things will not be able to continue on this way forever. We estimate that the next bubble, if the Fed is able to get the rest of the world behind it, will be decisive.

However, we continue to degrade the probability of this happening as the weeks go by, and the rest of the world appears to be asserting its financial sovereignty from the Anglo-American banking cartel.

Saving Private Greed

As best we can figure, this rally is providing cover for the big Wall Street banks who are issuing equity as fast as their little hooves can move, to qualify for the TARP payback mechanism.

By 'proving' that the market wishes their debt and equity, Timmy says they will be permitted to pay back their TARP funds, and be released from scrutiny on their bonuses.

While the volumes stay thin and the Fed's wallet remains fat, this rally make continue. Or at least an optimistic trading range.

As a side note, I made the first borscht of the summer season yesterday with very nice beets from a local source. Slowly roasted the beef and beef bones, onions, and celery to carmelize in a foil pan on a grill outside, and then cooked it up with the already cleaned and boiled beets, beef stock, seasoning, a little sugar and vinegar in a big pot for a couple hours. We then allowed it to chill overnight. It was a thin clear broth but a deep purple, and loaded with diced pieces of beef and beets, with a few very small round redskin potatoes.

With a dollop of sour cream and chopped sweet onion, DELICIOUS! and refreshing.

By far the best, and a delightful distraction from this wretched market.

Arthur Levitt Hired by Goldman Sachs

Arthur is often trotted out as an independent analyst and pundit on financial news programs. His name has been floated for some of the top regulatory jobs in the Obama Administration.

Goldman does not require advice from Arthur Levitt. People like Art and Larry Summers are hired for their connections, insider knowledge, and for future services to be rendered. In this case Arthur will be offering to help to shape the evolving regulatory structure as it is 'reformed.'


Arthur Levitt to Serve as Advisor to Goldman Sachs

NEW YORK -- (Business Wire) --

The Goldman Sachs Group, Inc. (NYSE: GS) today announced that Arthur Levitt has agreed to serve as an advisor to Goldman Sachs. In this capacity, he will provide strategic advice to the firm on a range of matters, including those related to public policy.

“ArthurÂ’s experience and deep knowledge of our industry will be of tremendous value to our firm,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer of The Goldman Sachs Group, Inc. “We look forward to having the benefit of his insight on a range of issues relating to the firm and financial services in general.”

Mr. Levitt was the 25th Chairman of the U.S. Securities and Exchange Commission and its longest serving Chairman. He began in this role in July 1993 and left the Commission in February 2001.

Before joining the SEC, Mr. Levitt owned Roll Call, a Washington D.C.-based newspaper that focuses on the US government. He also served as the Chairman of the New York City Economic Development Corporation, Chairman of the American Stock Exchange and President of Shearson Hayden Stone. He is presently a Senior Advisor to The Carlyle Group, Promontory Financial Group, Getco and serves on the board of Bloomberg LP...
.

SP Daily Chart: Bubble Bubble Toil and Trouble

Expanding the money supply, commonly called 'printing,' cannot result in a genuine economic recovery without significant reform and restructuring, with a net result in an increasing real median wage. We see no indications in that direction yet.

Otherwise, what we will see at best is another false but perhaps impressive nominal recovery in financial assets and equities, with a bigger and more deadly bubble somewhere in the real economy. The last two times the Fed tried this we saw bubbles in tech stocks and the housing market respectively.

What will the next bubble be, besides very painful? Commodities seem a likely candidate.

If the bubble attempt fails, then we will revisit the lows, and experience stagflation. Those who still cling to the deflation prospect are holding on to a narrow thread of true belief indeed. It is possible, but now improbable.

We have some small optimism that the Obama Administration will let go of their cronyism and self-dealing corruption in their decision-making, but not much.

The removal of Larry Summers from the administration team would be the key indicator that would keep that slim hope alive. He is a significant impediment to our national prospects, even moreso than his colleagues Ben Bernanke and Tim Geithner.

Eventually all three will be given their walking papers, it is merely a question of how much damage their bad decisions will make before they leave.

The stench of crony capitalism and corruption is almost as thick as a Chicago style pizza crust in what was supposed to be a reform government.

Nasdaq 100 Futures at 2:45 PM

“The terrible, cold, cruel part is Wall Street. Rivers of gold flow there from all over the earth, and death comes with it. There, as nowhere else, you feel a total absence of the spirit: herds of men who cannot count past three, herds more who cannot get past six, scorn for pure science and demoniacal respect for the present. And the terrible thing is that the crowd that fills the street believes that the world will always be the same and that it is their duty to keep that huge machine running, day and night, forever." Federico Garcia Lorca

A short term counter trend rally today helped stocks to recover from the recent lows, and continue the intermediate term rally off the lows from earlier this year.

The London office of Goldman Sachs apparently triggered this rally with some upgrades in the banking sector, and a vicious bear raid in the precious metals. The bond also sold off as investors are enticed to buy US equities.

The earnings results of Lowe's were trumpeted heavily by the demimonde of Wall Street, but it is most likely the natural reaction of consumers to seek to improve their infrastructure as they hunker down and cut back on discretionary purchases. It by no means contradicts the overwhelming economic evidence.

Wall Street has a few IPOs it wishes to bring out this week to test the waters for a larger IPO from AIG of one of its units. And of course the banks continue to sell secondary offerings.

If something looks like bait, and smells like bait, it probably has a hook in it somewhere.

The notion of trading in markets against market makers and insiders trading for their own trading profits heavily equipped with zero cost government funds and advantageous information would be almost laughable if it was not such a tragic abuse of productive capitalism and free markets.

Keep that in mind when you trade the short term, or try to interpret the daily actions of the markets. Most short term movements have nothing to do with the fundamentals, and everything to do with the dealers and shills peeking into your hand and running bluffs against the small traders and the funds and institutions.

Most investors have no business trading options or forex or futures at any time.

Everyone's situation is different, but overal this looks like an especially treacherous bear market, made doubly difficult by the actions of the Treasury and the Fed in bankrolling malinvestment, imbalances and corrupted price discovery.

When in doubt, get out. Don't get hooked by greed. And don't step in front of a market operation to run prices up or down. Wait for the longer term trends to assert themselves, and avoid the trap of calling tops and bottoms and attempting to be 'the first' in ahead of a market move.

This rally 'could' have some legs if it becomes a determined effort to reflate the credit bubble supported by the power of the Treasury and the Fed, as we saw in 2003-6, which was a reckless and disgraceful abuse of the Fed's economic responsibilities.

We doubt they can do it again, but never underestimate the power of greed and fear over memory and prudence.

Don't Ask Why, Just Buy

The message on Bloomberg Television this morning is loud and clear: "Don't ask why, just buy."

The chief message carrier was a Mr. Brian Belski of Oppenheimer, who suggested that trying to analyze the markets for yourself is a waste of time. Just listen to the experts.

We have a new bull market. Who cares whether it is cyclical or secular. Let's just be happy that the worst is now behind us, and frankly, just buy.

Brian is representing the notion that any sort of gain over 20% is a new bull market.

Well Brian, here's your new bull market. Maybe it will become one. But from this perspective it is just a typical bounce within a powerful bear market. It must prove itself.

So far this looks like hot money from the public (taxes) trying to push up the shell of the Ponzi credit bubble while the insiders continue to hit the exits.

And we do not care what anyone says, the fundamentals are rotten. They are just not falling apart as quickly now after a precipitous revelation of the truth behind the facade of statistical manipulation. There are no green shoots, and there is no recovery.

There has been little or no reform. Just a fresh smear of lipstick on the same old pig, applied by the swineherds of Wall Street and Washington.




And in the meantime, let's buy some gold, silver, food, critical supplies, and party on...








Burn your credit cards, honor your family and friends friends, give to God what is His, live within your means.

The Problem With Our Regulatory Process

There have been and still are three obvious problems with our regulatory structure.

1. Influence Peddling

2. Conflicts of Interest

3. Corruption

Reorganizing to more fully centralize the regulatory process is exactly the wrong thing to do.

It was often individuals and the individual States, standing against the pressure of federal regulators, which exposed unethical and illegal practices.

And as for the idea that the Fed can take on more of these functions, just remember what will happen the next time a Greenspan gets in that position.

The Fed is a private organization owned by the banks, too often opaque, and with a highly questionable independence and objectivity.

Reorganization to centralize bad decision making and conflicts of interests is right out of the 1990's corporate playbook.


If Obama has a pair of his own he will appoint someone like Eliot Spitzer, Ron Paul, or Dennis Kucinich as the new Chairman of the SEC or the CFTC.

Break The Big Banks Up, and Let the Insolvent Parts Fail

This advice from Simon Johnson, Joe Stiglitz, and Thomas Hoenig can almost be characterized as common sense, apparent to almost any objective and informed observer.

So why is it not happening? It is not happening because it is not in the narrow interest of a few Wall Street Banks who are dominating the discussion in this country and in our Congress.

This is the kind of betrayal by an oligarchy that we saw in the USSR after their financial crisis and breakup.

With all the conflicts of interests and million dollar payments how can we not assume that the decision makers in the Obama administration have been bought, and that we are being betrayed?



Bloomberg
Fed's Hoenig: Let insolvent financial firms fail
By Alister Bull
Tue Apr 21, 2009 4:31pm BST


WASHINGTON (Reuters) - Insolvent financial firms must be allowed to fail regardless of size, a top Federal Reserve official said on Tuesday, as two prominent economists urged Congress to break up the biggest U.S. banks.

In blunt criticism of the government Federal Reserve Bank of Kansas City President Thomas Hoenig told Congress' Joint Economic Committee that the design of a $700 billion bank bailout last year sowed uncertainty and slowed recovery.

Citing the costs of the economic crisis, Nobel economic laureate Joseph Stiglitz and former IMF chief economist Simon Johnson also told the panel that it was in the interest of taxpayers to dissolve the largest U.S. financial institutions.

"The United States currently faces economic turmoil related directly to a loss of confidence in our largest financial institutions because policymakers accepted the idea that some firms are just 'too big to fail.' I do not," Hoenig said.

"Yes, these institutions are systemically important, but we all know that in a market system, insolvent firms must be allowed to fail regardless of their size, market position or the complexity of operations," said Hoenig, who will be a voter on the Fed's policy-setting committee next year.

U.S. anti-trust rules should be used to break up the biggest banks to safeguard the economy, said Johnson, a professor at the Massachusetts Institute of Technology. He added the costs of the financial crisis already dwarf the damage done by industrial monopolies in the last century.

"The use of anti-trust (laws) to break up the largest banks will be essential," he said. "This is a very serious, imminent danger that needs to be addressed."

Stiglitz made a similar point, arguing that the American people had not received anything like sufficient benefits from allowing such large financial firms to grow, versus with the costs of the crisis.

"They should be broken up unless a compelling case can be made not to that," Stiglitz, a Columbia University professor, told the committee.

The biggest 19 U.S. banks are being subjected to a battery of so-called stress tests to restore confidence in their soundness, with guidelines on the process due on Friday and the results on May 4.

Stocks fell sharply on Monday amid fear that some of them still face massive losses, as the severe U.S. recession forces loan default rates to continue rising.

U.S. Treasury Secretary Timothy Geithner has signaled that no firms will 'fail' the stress tests, but Hoenig said this would be a mistake.

"Actions that strive to protect our largest institutions from failure risk prolonging the crisis and increasing its cost," Hoenig said.

"Of particular concern to me is the fact that the financial support provided to firms considered "too big to fail" provides them a competitive advantage over other firms and subsidizes their growth and profit with taxpayer funds," he said.

Nodding to anger among ordinary Americans over multi-billion dollar bailouts for rich bankers, Hoenig said some of these firms were simply too complicated, and too well-connected in Washington, for the good of the country.

"These "too big to fail" institutions are not only too big, they are too complex and too politically influential to supervise on a sustained basis without a clear set of rules constraining their actions. When the recession ends, old habits will reemerge," he said.

Hoenig also criticized the government's Troubled Asset Relief Program, or TARP, which was also separately chided on Tuesday by the Treasury's watchdog.

"In the rush to find stability, no clear process was used to allocate TARP funds among the largest firms. This created further uncertainty and is impeding recovery," Hoenig said.

The Crisis of Our Democracy: Corruption in the Financial Markets and Obama's Failure to Reform

This interview with William Black in Barron's is an articulate and reasonably detailed summary of our own view of the current crisis from an exceptionally well-informed and experienced source.

The big question in our own mind is the depth of complicity and the motivations of the government, the media and major institutions in continuing to support this financial corruption through silence or participation.

Is Obama really merely listening to the wrong advice from highly placed sources in the Democratic Party? And how sincere are they? The record of corruption in the Obama Administration in the form of conflicts of interest and tax evasion is already the smoke that warns of fire.

All good questions, more relating to the length of time to a cure rather than its essential character.

The banks must be restrained, the financial system must be reformed, before there can be a sustained economic recovery.


Barron's
The Lessons of the Savings-and-Loan Crisis
By Jack Willoughby
11 April 2009

AN INTERVIEW WITH WILLIAM BLACK: The current bank scandal dwarfs the 1980s savings-and-loan crisis -- and could destroy the Obama presidency.

WILLIAM BLACK CALLS THEM AS HE SEES THEM, which is why we enjoy talking with him. Black, 57 years old, was a deputy director at the former Federal Savings and Loan Insurance Corp. during the thrift crisis of the 1980s, and now serves as an associate professor, teaching economics and law at the University of Missouri, Kansas City. At FSLIC, a government agency that insured S&L deposits, Black prevailed in showdowns with the powerful Democratic Speaker of the House, Jim Wright, and helped identify the infamous Keating Five, a group of U.S. senators (including Sen. John McCain, the Arizona Republican who lost his bid for the presidency in 2008) who tried to quash his attempt to close Charles Keating's Lincoln Savings & Loan. Wright eventually resigned amid unrelated ethics charges, and the senators were reprimanded for poor judgment. Keating went to jail for securities fraud.

For Black's provocative thoughts on the current financial crisis, read on.


Barron's: Just how serious is this credit crisis? What is at stake here for the American taxpayer?

Black: Mopping up the savings-and-loan crisis cost $150 billion; this current crisis will probably cost a multiple of that. The scale of fraud is immense. This whole bank scandal makes Teapot Dome [of the 1920s] look like some kid's doll set. Unless the current administration changes course pretty drastically, the scandal will destroy Barack Obama's presidency. The Bush administration was even worse. But they are out of town. This will destroy Obama's administration, both economically and in terms of integrity.

So you are saying Democrats as well as Republicans share the blame? No one can claim the high ground?

We have failed bankers giving advice to failed regulators on how to deal with failed assets. How can it result in anything but failure? If they are going to get any truthful investigation, the Democrats picked the wrong financial team. Tim Geithner, the current Secretary of the Treasury, and Larry Summers, chairman of the National Economic Council, were important architects of the problems. Geithner especially represents a failed regulator, having presided over the bailouts of major New York banks.

So you aren't a fan of the recently announced plan for the government to back private purchases of the toxic assets?

It is worse than a lie. Geithner has appropriated the language of his critics and of the forthright to support dishonesty. That is what's so appalling -- numbering himself among those who convey tough medicine when he is really pandering to the interests of a select group of banks who are on a first-name basis with Washington politicians.

The current law mandates prompt corrective action, which means speedy resolution of insolvencies. He is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent. He has introduced the concept of capital insurance, essentially turning the U.S. taxpayer into the sucker who is going to pay for everything. He chose this path because he knew Congress would never authorize a bailout based on crony capitalism.

Geithner is mistaken when he talks about making deeply unpopular moves. Such stiff resolve to put the major banks in receivership would be appreciated in every state but Connecticut and New York. His use of language like "legacy assets" -- and channeling the worst aspects of Milton Friedman -- is positively Orwellian. Extreme conservatives wrongly assume that the government can't do anything right. And they wrongly assume that the market will ultimately lead to correct actions. If cheaters prosper, cheaters will dominate. It is like Gresham's law: Bad money drives out the good. Well, bad behavior drives out good behavior, without good enforcement.

His plan essentially perpetuates zombie banks by mispricing toxic assets that were mispriced to the borrower and mispriced by the lender, and which only served the unfaithful lending agent.

We already know from the real costs -- through the cleanups of IndyMac, Bear Stearns, and Lehman -- that the losses will be roughly 50 to 80 cents on the dollar. The last thing we need is a further drain on our resources and subsidies by promoting this toxic-asset market. By promoting this notion of too-big-to-fail, we are allowing a pernicious influence to remain in Washington. The truth has a resonance to it. The folks know they are being lied to.

I keep asking myself, what would we do in other avenues of life? What if every time we had a plane crash we said: 'It might be divisive to investigate. We want to be forward-looking.' Nobody would fly. It would be a disaster.

We know that with planes, every time there is an accident, we look intensively, without the interference of politics. That is why we have such a safe industry.

Summarize the problem as best you can for Barron's readers.

With most of America's biggest banks insolvent, you have, in essence, a multitrillion dollar cover-up by publicly traded entities, which amounts to felony securities fraud on a massive scale.

These firms will ultimately have to be forced into receivership, the management and boards stripped of office, title, and compensation. First there needs to be a clearing of the air -- a Pecora-style fact-finding mission conducted without fear or favor. [Ferdinand Pecora was an assistant district attorney from New York who investigated Wall Street practices in the 1930s.] Then, we need to gear up to pursue criminal cases. Two years after the market collapsed, the Federal Bureau of Investigation has one-fourth of the resources that the agency used during the savings-and-loan crisis. And the current crisis is 10 times as large.

There need to be major task forces set up, like there were in the thrift crisis. Right now, things don't look good. We are using taxpayer money via AIG to secretly bail out European banks like Société Générale, Deutsche Bank, and UBS -- and even our own Goldman Sachs. To me, the single most obscene act of this scandal has been providing billions in taxpayer money via AIG to secretly bail out UBS in Switzerland, while we were simultaneously prosecuting the bank for tax fraud. The second most obscene: Goldman receiving almost $13 billion in AIG counterparty payments after advising Geithner, president of the New York Fed, and then-Treasury Secretary Henry Paulson, former Goldman Sachs honcho, on the AIG government takeover -- and also receiving government bailout loans.

What, then, is staying the federal government's hand? Have the banks become too difficult or complex to regulate?

The government is reluctant to admit the depth of the problem, because to do so would force it to put some of America's biggest financial institutions into receivership. The people running these banks are some of the most well-connected in Washington, with easy access to legislators. Prompt corrective action is what is needed, and mandated in the law. And that is precisely what isn't happening.

The savings-and-loan crisis showed that, too often, the regulators became too close to the industry, and run interference for friends by hiding the problems.

Can you explain your idea of control fraud, and how it applies to the current banking and the earlier thrift crisis?

Control fraud is when a seemingly legitimate corporation uses its power as a weapon to defraud or take something of value through deceit.

In the savings-and-loan crisis, thrifts engaged in control frauds in order to survive. Accounting trickery proved to be the weapon of choice. It is at work today with the banks, and it is their Achilles heel. You report that you are highly profitable when you engage in accounting-control fraud, not only meeting but exceeding capital requirements. These accounting frauds create huge bubbles, which in turn create large bonuses, which in turn lead to huge losses.

Why then is there so much smoke and so little action?

First, they are inundated by the problem. They are trying to investigate the major problems with severely depleted staffs. Honestly. We have lost the ability to be blunt. Now we have a situation where Treasury Secretary 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 they would have to deal with the problem banks.

Are there any parallels between the current crisis and the savings-and-loan crisis that give you hope?

Of course. Objectively, our case was even more hopeless in the S&L debacle than in the current crisis. If we were able to do it in such an impossible circumstance back then, we have reason for hope in the current crisis. I know how easily things can get off course and how quickly things can turn back again. The thrift crisis went through several lengthy courses and distortions before it finally was resolved under the leadership of Edwin Gray, the chairman of the Federal Home Loan Bank Board, which oversaw FSLIC.

We went through almost a decade of cover-ups by a Washington establishment intent on helping thrift owners. Back then, we had the Justice Department threatening to indict Gray, the head of a federal agency, for closing too many thrifts. Next, there were those so-called resolutions, where the regulators worked day and night -- to create even bigger problems for the FSLIC. Years later, these so-called resolution deals had to be unwound at great expense by closing down even larger failures. Or how about the bill to replenish the depleted thrift-insurance fund that was blocked and delayed by then-Speaker of the House, Texas congressman Jim Wright?

You say the evidence of a breakdown in the regulatory structure comes from the fact that America avoided an earlier subprime crisis in the 1990s.

Exactly. Why had no one heard of the subprime crisis back in 1991? Because America's regulators also faced down the crisis early. The same thing happened with bad credits being securitized in the secondary market. Remember the low-doc or no-doc mortgages done by Citibank? Well, the problem didn't spread -- because regulators intervened.

Obama, who is doing so well in so many other arenas, appears to be slipping because he trusts Democrats high in the party structure too much.

These Democrats want to maintain America's pre-eminence in global financial capitalism at any cost. They remain wedded to the bad idea of bigness, the so-called financial supermarket -- one-stop shopping for all customers -- that has allowed the American financial system to paper the world with subprime debt. Even the managers of these worldwide financial conglomerates testify that they have become so sprawling as to be unmanageable.

What needs to be done?

Well, these international behemoths need to be broken down into smaller units that can be managed effectively. Maybe they can be broken up the way that the Standard Oil split up back in the early 1900s, through a simple share spinoff.

The big problem for the last decade is that we have had too much capacity in the finance sector -- too many banks have represented a drain on our talent and resources. All these mergers haven't taken capacity out of the system. They have created even bigger banks that concentrate risk to the taxpayer, and put off dealing with problems.

And a new seriousness must be put into regulation. We don't necessarily need new rules. We just need folks who can enforce the ones already on the books.

The bank-compensation system also creates an environment that leads to mismanagement and fraud. No one has to tell someone they have to stretch the numbers. 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% get the bulk of the benefits and the bottom 10% get fired. You don't directly tell your employees you want them to lie and cheat. You set up an atmosphere of results at any cost. Rank or yank. Sooner rather than later, someone comes up with the bright idea of fudging the numbers. That's big bonuses for the folks who make the best numbers. It sends the message -- making the numbers is what is most important. There is a reason that the average tenure of a chief financial officer is three years.

Compensation systems like I have just described discourage whistleblowing -- the most common way that frauds are found in America -- because the system draws upon the cooperation of everyone.

The basis for all regulation and white-collar crime is to take the competitive advantage away from the cheats, so the good guys can prevail. We need to get back to that.

Thanks, Bill.

Obama's Failure and the Unfolding Financial Crisis

Kevin Phillips is a brilliant and insightfuly political commentator, and we have featured his videos and writings here many times.

His latest essay is worth reading over the long weekend.

"This is a much grander-scale disaster than anything that happened in 1929-33. Worse, it dwarfs the abuses of debt, finance and financialization that brought down previous leading world economic powers like Britain and Holland...

But for the moment, let me underscore: the average American knows little of the dimensions of the financial sector aggrandizement and misbehavior involved. Until this is remedied, there probably will not be enough informed, focused indignation to achieve far-reaching reform in the teeth of financial sector money and influence. Equivocation will triumph. This will not displease politicians and regulators leery of offending their contributors and backers."

It is ironic that Joe Biden predicted that our Community-Organizer-in-Chief would be tested severely in his first days in office. At the time everyone thought it would be some foreign power, some military machine which would temper the character of this new leader with a significant threat to the national welfare.

Little did we suspect that the test of our sovereign republic would come from the Wall Street and the money center banks.


Table for One - TPMCafe
The "Disaster Stage" of U.S. Financialization
By Kevin Phillips
April 7, 2009, 3:34PM

Thirty to forty years ago, the early fruits of financialization in this country - the first credit cards, retirement accounts , money market funds and ATM machines - struck most Americans as a convenience and boon. The savings and loan implosion and junk bonds of the 1980s switched on some yellow warning lights, and the tech bubble and market mania of the nineties flashed some red ones. But neither Wall Street nor Washington stopped or even slowed down.

In August, 2007, the housing-linked crisis of the credit markets predicted the arriving disaster-stage, the Crash of September-November 2008 confirmed the debacle, and now an angry, fearful citizenry awaits a further unfolding. There is probably no need to fear a second coming of nineteen-thirties Depression economics. This is not the same thing; the day-to-day pain shouldn't be as severe.

Indeed, for all that the 1930s evoke national trauma, that decade was in fact a waiting room for national glory and wellbeing. World War Two ushered in American global ascendancy, the "Happy Days" of the 1950s and an unprecedented middle-class prosperity.

Today's disaster stage of American financialization - the bursting of the huge 25-year, almost $50 trillion debt bubble that helped underwrite the hijacking of the U.S. economy by a rabid financial sector -- won't be nearly so kind. It is already ushering in the reverse: a global realignment in which the United States loses the global economic leadership won in World War Two. The ignominy deserved by Wall Street after 1929-1933 is peanuts compared with the opprobrium the U.S. financial sector and its political and regulatory allies deserve this time.

My 2002 book, Wealth and Democracy, in its section on the "Financialization of America" noted that the "finance, insurance and real estate (FIRE) sector overtook manufacturing during the 1990s, moving ahead in the national income and GDP charts by 1995. By the first years of the next decade, it had taken a clear lead in actual profits. Back in 1960, parenthetically, manufacturing profits had been four times as big, and in 1980, twice as big." Hardly anyone was paying attention.

By 2006, the FIRE sector, its components mixed together like linguine by the 1999 repeal of the old New Deal restraints against mergers of commercial banks, investment firms and insurance, had ballooned to 20.6% of U.S. GDP versus just 12% for manufacturing. The FIRE Sector, now calling itself the Financial Services Sector, lopsidedly dominated the private economy. A detailed chart appears on page 31 of Bad Money. Some New York publications and politicians try to insist that finance per se is only 8%, but the post-1999 commingling makes that absurd.

This represented a staggering transformation of the U.S. economy - doubly staggering now because of the crushing burden of its collapse. You would think that that opinion molders and the national media would have been probing its every aperture and orifice. Not at all.

Thus, it was pleasing to read MIT economics professor Simon Johnson's piece in the April Atlantic fingering financial "elites" who captured the government for the latterday financial debacle. This is broadly true, and judging from my e.mail, even some conservatives accept Johnson's analysis and indictment. After the furor over the AIG bonuses, the public and some politicians may be ready to start identifying and blaming culprits. This would be useful. Having an elite to blame is a often prerequisite of serious reform.

Nevertheless, the extremes of financialization, together with the havoc we now know it to have wrought, represent a much more complicated historical and economic genesis, one which U.S. leaders must be obliged to confront if not fully acknowledge. Elite avarice and culpability has multiple and longstanding dimensions. It has been fifteen years since Graef Crystal, a wellknown employment compensation expert, brought out his incendiary In Search of Excess: the Overcompensation of American Executives. The data was blistering. Over the last decade, New York Times reporter David Cay Johnston has published two books - Perfectly Legal and Free Lunch - describing how the U.S. tax code, in particular, has been turned into a feeding trough for the richest one percent of Americans (especially the richest one tenth of one percent).

The backstop to avarice provided by a wealth culture and market mania from the late 1980s through the Clinton years to the George W. Bush administration, prompted another set of indictments that still resonate: William Greider's Secrets of the Temple: How the Federal Reserve Runs The Country (1987), Robert Kuttner's Everything For Sale (1997), Thomas Frank's One Market Under God (2000) and John Gray's False Dawn (1998). More recently, Paul Krugman's books have been equalled or exceeded in timeliness by his New York Times columns blasting the perversity of the Obama-Geithner financial bail-out and the malfeasance of the financial sector.

James K. Galbraith, in his 2008 book The Predator State, has elaborated the valid point that too many conservatives over last few decades betrayed their free market rhetoric by supporting a relentless use of state power and government financial bail-outs to advance upper-income and corporate causes. On the other hand, some conservative economists of the Austrian school make related indictments of liberal bail-out penchants.

This could be a powerful framework. All of these critiques have merit, and ideally they might converge as earlier indictments of elite and governmental abuse did during the Progressive and New Deal eras. But I have to return to whether the public will ever be given full information on the fatal magnitude of financialization, who was responsible, and how it failed and crashed in 2007-2009. So far, political and media discussion has been so minimal that the early 21st century American electorate has much less readily available information on what took place than did the electorates of those earlier reform eras.

Towards this end, my initial emphasis in the new material included in the 2009 edition of Bad Money is on what techniques, practices and leverage the financial sector used between the mid-1980s and 2007 to metastasize early-stage financialization into an economic and governmental coup and, ultimately, a national disaster.

Perhaps not surprisingly, I found that the principal building blocks that the sector used to enlarge itself from 10-12% of Gross National Product around 1980 to a mind-boggling 20.6% of Gross Domestic Product in 2004 involved essentially the same combination of credit-mongering, massive sector borrowing, highly leveraged speculation, reckless, greedy pioneering of new experimental vehicles and securities (derivatives and securitization) and mega-trillion-dollar abuse of the mortgage and housing markets that became infamous as hallmarks of the 2007-2009 disaster. During Alan Greenspan's 1987-2006 tenure as Federal Reserve Chairman, financial bubble-blowing became a Washington art and total credit market debt in the U.S. quadrupled from $11 trillion to $46 trillion.

To try to put 20-30 pages into a nutshell, the financial sector hyped consumer demand - from teen-ager credit cards to mortgages for the unqualified - to make credit into one of the nation's biggest industries; nearly $15 trillion was borrowed over two decades to leverage de facto gambling at 20:1 and 30:1 ratios; banks, investment firms, mortgage lenders, insurers et al were all merged together to do almost anything they wanted; exotic securities and instruments that even investment chiefs couldn't understand were marketed by the trillions. To achieve fat financial-sector profits, the housing and mortgage markets might as well have been merged with Las Vegas.

The principal inventors, hustlers , borrowers and culprits were the nation's 15-20 largest and best known financial institutions - including the ones that keep making headlines by demanding more bail-out money from Washington and giving huge bonuses. These same institutions got much of the early bail-out money and as of December 2008 they accounted for over half of the bad assets written off.

The reason these needed so much money is that they government had let them merge, speculate, expand and experiment on dimensions beyond all logic. That is why the complicit politicians and regulators have to talk about $100 billion here and $1 trillion there even while they pretend that it's all under control and that the run-amok financial sector remains sound.

This is a much grander-scale disaster than anything that happened in 1929-33. Worse, it dwarfs the abuses of debt, finance and financialization that brought down previous leading world economic powers like Britain and Holland (back when New York was New Amsterdam). I will return to these little-mentioned precedents in another post this week.

But for the moment, let me underscore: the average American knows little of the dimensions of the financial sector aggrandizement and misbehavior involved. Until this is remedied, there probably will not be enough informed, focused indignation to achieve far-reaching reform in the teeth of financial sector money and influence. Equivocation will triumph. This will not displease politicians and regulators leery of offending their contributors and backers.

Congressional Watchdog to Drop a Bombshell on the US Financial Industry

"...set to call for shareholders in those institutions to be wiped out. 'It is crucial for these things to happen...'"

How about a stiff haircut for the bondholders and defaults on the credit default swaps held by JP Morgan and Goldman Sachs?

It will be most interesting to see how Tim Geithner and Larry Summers respond to this advice from Congressional oversight.


The Guardian UK
US watchdog calls for bank executives to be sacked
James Doran in New York
The Observer,
Sunday 5 April 2009

Elizabeth Warren, chief watchdog of America's $700bn (£472bn) bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration's approach to saving the financial system from collapse.

Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program (TARP), is also set to call for shareholders in those institutions to be "wiped out". "It is crucial for these things to happen," she said. "Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade."

She declined to give more detail but confirmed that she would refer to insurance group AIG, which has received $173bn in bailout money, and banking giant Citigroup, which has had $45bn in funds and more than $316bn of loan guarantees.

Warren also believes there are "dangers inherent" in the approach taken by treasury secretary Tim Geithner, who she says has offered "open-ended subsidies" to some of the world's biggest financial institutions without adequately weighing potential pitfalls. "We want to ensure that the treasury gives the public an alternative approach," she said, adding that she was worried that banks would not recover while they were being fed subsidies. "When are they going to say, enough?" she said.

She said she did not want to be too hard on Geithner but that he must address the issues in the report. "The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous."

The report will also look at how earlier crises were overcome - the Swedish and Japanese problems of the 1990s, the US savings and loan crisis of the 1980s and the 30s Depression.

"Three things had to happen," Warren said. "Firstly, the banks must have confidence that the valuation of the troubled assets in question is accurate; then the management of the institutions receiving subsidies from the government must be replaced; and thirdly, the equity investors are always wiped out."

The AIG Scandal Is Merely a Symptom of Our National Agony

The AIG bonuses are a calculated distraction.

This is the heart of the problem:

We will have no recovery until the system is reformed and brought back into a sustainable balance. To achieve this end, the banks must be returned to business of banking again, with the reinstatement of Glass-Steagall. The hedge funds must be restrained through fundamental regulatory reform.

A private agency like the Fed is not capable of performing these tasks. The Fed, for all the rhetoric that surrounds it, is a private enterprise owned by the banks. The effectiveness of self-regulation and the rational efficiency of markets are the great myths that have led us to our current crisis.

The Fed as the great regulator for multiple markets is an attractive choice for the government, because when it fails the government may point the finger of blame, and absolve itself of all responsibility for our ruin as they are attempting to do now.

Slate
The Real AIG Scandal
By Eliot Spitzer
March 17, 2009, at 10:41 AM ET

It's not the bonuses. It's that AIG's counterparties are getting paid back in full.

Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall.

Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes.

So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure...

The Obama Team's Economic Performance Is Pathetic

Wouldn't it be nice if one day the Obama Administration came up with a change, an innovative reform for the financial system that made us sit back and say, "Wow, that's great! That's exactly what we have been looking for."

So far it has been one misstep, one fumble, one tired old Henny Youngman routine after another. The Clinton Administration retread meets the road, and falls apart.

Things went badly beginning with the appointment of Larry Summers as key economic advisor.

Larry was one of the three man miracle team of Greenspan, Rubin and Summers that turned the Asian monetary crisis into the tech bubble after a smoke and mirrors economic recovery while the industrial base of the US continued to slide into the Pacific.

We have seen nothing that speaks of the promise that we felt when America said "enough" and voted for a change in the fall of 2008.

And after the Summers disappointment we received the the Rubin protege, Tim Geithner, with the thinnest of financial backgrounds, who while at the NY Fed helped to help transform the housing bubble collapse into the bailout bust.

His position at Treasury is such an obvious, glaring mismatch that he cannot even staff key jobs in his own department. Who would want to work under such an obvious, embarrassing failure?

This is not a poor performance. This is an abject, incompetent inability to address the most critical issue facing this country.

This is Obama's Iraq: a morass of crippling failure brought on by horrible advice from key advisors with their own agendas.

President Obama throws rhetoric at the problem from a distance, like he is still campaigning against something. He leaves the impression of a more articulate Bush, inspiring no lasting confidence, giving no impression that he is in charge, on top of the situation, in control with a well thought out plan. He can make you feel good while he is speaking, then reality sets in and you realize that there is nothing there. Where are the management skills to back up the rhetoric?

Don't get us wrong. This is still early in the game. But the Democrats are losing the early rounds, as the situation grows more dire.

Well, Mr. Obama, you are President now, and even though you have only a short time in the office, so far you have shown us nothing. Your shepherding of a stimulus bill through the Congress was a nightmare, made worse by Nancy Pelosi who is a mediocre House Speaker at best, but appears a dynamo in comparison to Majority Leader Harry Reid.

Tired old solutions, inbred beltway thinking, old boy insider dealing.

Embarrassing. Unworthy. Amateurish. Pathetic.

You are failing, and we see it, and the anger, and sense of quiet panic, is building.

Time to get serious, to get it together. Time to step up to the job and take command. Time to show us your best stuff, find the levers, roll up your sleeves, and step down from the pulpit.

Warren Buffett: "Economy Has Fallen Off a Cliff"

Warren Buffett is 'talking his book' for a portion of this interview, but he does have some unique insights into the real time economic conditions because of the position of his conglomerate in a number of key businesses that measure the pulse of economic activity.

He sees inflation ahead, and rightly so. The question however is, as always, when?

Adding debt capacity to the system now is useless. Yes, stabilizing the financial system is important. But the demand for debt is so lagging, and the prospects for profit so poor, that one wonders if only the desparate will cry for more credit while they drown.

The solution will be an improvement in the median wage, systemic reforms, and the orderly writedown of debt held by effectively insolvent banks. 'Saving the banking system' as it is constituted now is more than a fool's errand.

It is the path to a test of the fabric of our government not seen since the 1860's.

Bloomberg
Warren Buffett Says Economy Has ‘Fallen Off a Cliff’
By Erik Holm
March 9, 2009 09:29 EDT

March 9 (Bloomberg) -- Billionaire Warren Buffett, whose Berkshire Hathaway Inc. posted its worst results ever in 2008, said the economy “has fallen off a cliff” and that efforts to stimulate recovery may lead to inflation higher than the 1970s.

The American public is fearful, confused and changing their buying habits, which is showing up at Berkshire’s operating units, Buffett said during an appearance on the CNBC television network today. While the recession will end and future generations will live better than their parents, the economy “can’t turn around on a dime,” Buffett said, adding that some inflation is appropriate right now.

“We are doing things now that are potentially very inflationary,” he said. Buffett called on Congress to unite behind President Barack Obama, comparing the economic crisis to a military conflict that needs a commander-in-chief. “Patriotic Americans will realize this is a war,” he said....

Is the Bailout of AIG by the Fed a Bailout or a Payoff to the Major Banks?

In a Senate Banking Committee hearing in Washington on Thursday, Fed Vice Chairman Donald Kohn declined to identify AIG's trading partners. He said doing so would make people wary of doing business with AIG.

The Fed has far overstepped their bounds and are disbursing tax money in secret without the oversight of Congress.


Wall Street Journal
Top U.S., European Banks Got $50 Billion in AIG Aid
By SERENA NG and CARRICK MOLLENKAMP
MARCH 7, 2009

The beneficiaries of the government's bailout of American International Group Inc. include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant.

Among those institutions are Goldman Sachs Group Inc. and Germany's Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008, according to a confidential document and people familiar with the matter.

Other banks that received large payouts from AIG late last year include Merrill Lynch, now part of Bank of America Corp., and French bank Société Générale SA.

More than a dozen firms with smaller exposures to AIG also received payouts, including Morgan Stanley, Royal Bank of Scotland Group PLC and HSBC Holdings PLC, according to the confidential document.

The names of all of AIG's derivative counterparties and the money they have received from taxpayers still isn't known, but The Wall Street Journal has identified some of them and is publishing others here for the first time.

Lawmakers Want Names

The AIG bailout has become a political hot potato as the risk of losses to U.S. taxpayers rises. This past week, legislators demanded that the Federal Reserve disclose names of financial firms that have received money from AIG, which Fed officials have described as too systemically important in the financial system to be allowed to fail.

In a Senate Banking Committee hearing in Washington on Thursday, Fed Vice Chairman Donald Kohn declined to identify AIG's trading partners. He said doing so would make people wary of doing business with AIG. (ROFLMAO - Wary of doing business with AIG? - Jesse)

But Mr. Kohn told lawmakers he would take their requests to his colleagues. The Fed, through a new committee led by Mr. Kohn to discuss transparency concerns, is now weighing whether to disclose more details about the AIG transactions.

The Fed rescued AIG in September with an $85 billion credit line when investment losses and collateral demands from banks threatened to send the firm into bankruptcy court. A bankruptcy filing would have caused losses and problems for financial institutions and policyholders globally that were relying on AIG to insure them against losses.

Since September, the government has had to extend more aid to AIG as its woes have deepened; the rescue package now has swelled to more than $173 billion.

The government's rescue of AIG helped prevent its counterparties from incurring immediate losses on mortgage-backed securities and other assets they had insured through AIG. The bailout provided AIG with cash to pay the banks collateral on the money-losing trades; it also bought out underlying mortgage-linked securities, many of which are currently worth less than half their original value.

Banks and other financial companies were trading partners of AIG's financial-products unit, which operated more like a Wall Street trading firm than a conservative insurer. This AIG unit sold credit-default swaps, which acted like insurance on complex securities backed by mortgages. When the securities plunged in value last year, AIG was forced to post billions of dollars in collateral to counterparties to back up its promises to insure them against losses.

More Problems

Now, other problems are popping up for AIG. The insurer generated a sizable business helping European banks lower the amount of regulatory capital required to cushion against losses on pools of assets such as mortgages and corporate debt. It did this by writing swaps that effectively insured those assets.

Values of some of those assets are declining, too, forcing AIG to also post collateral against those positions. And if the portfolios incur losses, AIG will have to compensate the banks.

AIG had seen this business as a relatively safe bet for the company and its investors. The structures were designed to allow European banks to shuck aside high capital costs. A change in capital rules has meant that the AIG protection no longer meets regulatory requirements.

The concern has been that if AIG defaulted, banks that made use of the insurer's business to reduce their regulatory capital, most of which were headquartered in Europe, would have been forced to bring $300 billion of assets back onto their balance sheets, according to a Merrill report.

The Banking Crisis: Obama's Iraq Part 2

It is hard to assess who among the current DC crew are more limp when it comes to addressing the banking crisis in a meaningful and effective manner: Geithner, Summers or Bernanke.

They are all the very picture of the bureaucrat, which is a nice way of saying "systemic hacks." Have Timmy and Ben have reached their level of incompetency? Larry Summers has far exceededed his some years ago at Harvard.

It is difficult ground when one speculates on motives, but these are all rather bright fellows, albeit creatures nurtured by the system that they serve. It is hard to accept that their inability to address our financial crisis is sheer incompetency. But for now they obtain the benefit of doubt and the CEO's defense made so popular by the Enron crowd.

We wonder how bad it will get before Obama understands that his team is not working, that they have no actionable vision among them for whatever combination of reasons, and that the corruption being perpetuated is starting to stick rather handily to the Democrats.

The banking crisis is starting to look like Obama's Iraq.


Bloomberg
Hoenig Says Treasury Failed to Take ‘Decisive’ Action on Banks
By Steve Matthews and Vivien Lou Chen

March 6 (Bloomberg) -- The U.S. Treasury has failed to take “decisive” action to address the bank crisis, pursuing an ad- hoc approach that leaves management in place and avoids necessary asset writedowns, a veteran Federal Reserve official said.

“If an institution’s management has failed the test of the marketplace, these managers should be replaced,” Fed Bank of Kansas City President Thomas Hoenig said in prepared remarks for a speech in Omaha, Nebraska. “They should not be given public funds and then micro-managed, as we are now doing” with “a set of political strings attached.”

Hoenig’s comments are the most detailed criticism of the Treasury’s actions by a Fed official since the financial crisis began. By contrast, Fed Chairman Ben S. Bernanke has endorsed the approaches taken by Treasury Secretary Timothy Geithner and his predecessor.

Geithner is requiring a “stress test” for the largest 19 U.S. banks to determine if they need more capital. He has stressed that nationalization isn’t the goal.

Last week, the U.S. government moved to convert some of the preferred stock it owned in Citigroup Inc. to common shares, gaining a 36 percent stake in the company and boosting Citigroup’s buffer against future losses. While authorities pushed for changes to the makeup of Citigroup’s board, Chief Executive Officer Vikram Pandit remains at the helm.

Hoenig said while policy makers “understandably” want to avoid nationalizing banks, “We nevertheless are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis.”

The Treasury’s $700 billion Troubled Asset Relief Program “began without a clear set of principles and has proceeded with what seems to be an ad-hoc and less-than-transparent approach,” Hoenig said today.

Banking regulators need to be willing to write down losses, bring in new managers and sell off businesses if institutions can’t survive on their own, “no matter what their size,” said Hoenig, the second-longest serving of the Fed district bank presidents, after Minneapolis’s Gary Stern.