Judgment day for 'imperial' CEOs
Commentary: Federal recovery plan may be $2 trillion shy
By Lou Barnes, Friday, January 16, 2009.
Flickr photo by midweekpost.Mortgage rates popped up today, but not far. A 1 percent origination fee still buys a "four" in front. The rise came partly in normal protective selling in advance of a four-day weekend, including MLK and inauguration.
However, other upward pressures may be more durable. Refinance demand is overwhelming. Also, flight-to-quality buying of bonds abated when the stock market reinforced its November low, and upon signs of effective banking-system rescue by the "Obamanauts." U.S. rates are down here at 225-year lows because we're in trouble; when trouble recedes, rates will rise.
The handoff of executive authority from Bush to Obama began in disorderly fashion weeks ago, as the exhausted administration ceased to function. The dead end came last night, as President Bush expressed pride in "making the tough decisions."
You can train a pigeon to make decisions. "Deciding" has no content; only quality counts. A few holdovers and unconfirmed appointees have begun the first competent action in a long time: The second round of TARP has been released at the urging and detailed assurances of Larry Summers, still on Harvard's payroll.
Sheila Bair, who will continue at the FDIC, told CNBC this morning that work is under way to deal with troubled assets in the banking system. A questioner snapped, "Don't we already have that?" Bair: "No." She then described several crisis-containment measures that should have started 18 months ago. She did not state what will soon be clear: The $700 billion TARP is at least a trillion short. Maybe two.
Tim Geithner's nomination to Treasury might have been torpedoed by two minor tax-filing errors. However, even Congress knows we're in so much trouble that trivial entertainment no longer deserves a priority. We need this man.
Federal Reserve chief Ben Bernanke on Tuesday laid out toxic-asset policy on the same line as Bair: good-bank bad-bank, asset guarantees, or other extraction. Most important: "In the future, financial firms of any type whose failure would pose a systemic risk must accept especially close regulatory scrutiny of their risk-taking." Very, very well done. A global, electronic, 24/7, acutely interdependent financial system cannot rest on market-discipline dominoes. We are stuck with too-big-to-fail, and must adapt to that reality.
For all my faith in Obama's pragmatic whiz-bangs, I have no idea how long it will take to reform the financial system. The depth of decadence revealed this week at Citi, Bank of America and Merrill is beyond my imagination.
Robert Rubin, previously second-only-to-Hamilton Treasury Secretary, slithered quietly away from the wreckage of Citi; his $17-million-per-year winnings intact, no accountability whatsoever for encouraging Citi to increase its risk-taking to ruin. After three rounds of bailout and guarantee, Citi is a $2.2 trillion basket case, a ward of the state, the great financial supermarket to be dismembered.
BofA's CEO, Ken Lewis, has for years worked to turn it into a Citi, most recently via the dubious acquisition of disgraced Countrywide, and last in his scramble to buy long-coveted Merrill in September -- $44 billion for a firm just minutes from following Lehman to the guillotine. Merrill's John Thain, presumed straight arrow, has since expected his many-million bonus, in largest part for finding an idiot to buy the firm.
The world learned yesterday that Lewis had no idea that Merrill's loss was too deep to absorb (despite two years of attempted acquisition), and that Thain either did not know or did not tell. Hence Treasury Secretary Henry Paulson's last act, gratia Dei: $110 billion to BofA to make sure that Merrill stays acquired and BofA survives. Now we own two supermarkets.
No matter how able the Obamanauts, we're not going to get anywhere until these imperial CEOs, their co-conspirators, and especially their boards of directors face public disgrace. There will be no end to decadence until there is a personal price for undermining our society for the sake of ego, transcending mere greed. Remove these people, and forbid them ever again to lead or sit on the board of a public institution.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
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Submitted by Jack McCabe on January 17, 2009 - 12:02am.
I applaud your analysis and blunt truthfulness. It's time to find any and all ways to criminally prosecute the real perpetrators of the destruction of our economy and free market capitalism.
Nice that the banks have taken the first $350,000,000,000 of our money/debt in the Troubled Asset Relief Program, and instead of utilizing funds for how it was "sold" to Congress and the American public, instead are hording the multi-billions to shore up their bottom lines from idiot lending policies, and target which banks their going to acquire with the free taxpayer money.
AIG, Bank of America, and Citi, these three companies alone, account for nearly $500,000,000,000 in taxpayer assistance. And the tab continues to increase exponentially.
Trillions and trillions and trillions of debt will flow as the bloodletting accelerates this year.
I've recently looked up how to spell quadrillion, just in case. A thousand trillion. Oh my!
Where will it end, and how many generations of our children will foot the bill?
And who is raping, or reaping the rewards??
Jack McCabe
CEO
McCabe Research & Consulting
Deerfield Beach, Florida
Submitted by Keith Labrecque on January 17, 2009 - 11:23am.
Lou, Thanks for the Plain talk, calling it like it is - don't stop! Right now we as a nation NEED BLUNT TALK.
That said, this whole thing is probably a lot more complicated than we would like to admit (or may ever understand), but I like the part of the bottom
line as you put it:
"No matter how able the Obamanauts, we're not going to get anywhere until these imperial CEOs, their co-conspirators, and especially their boards of
directors face public disgrace. There will be no end to decadence until there is a personal price for undermining our society for the sake of ego,
transcending mere greed. Remove these people, and forbid them ever again to lead or sit on the board of a public institution."
We have to recognize that banks of any stripe won't lend right now unless they have HIGH confidence in the borrowers not defaulting - and for the
bloodied big guys, it IS truly a matter of life and death (wether this should be publicly admitted or not just yet, I am not sure - see below). What this
signals to me (correct me if I am wrong) is that there is SO MUCH MORE toxic stuff in their portfolios (on or off the balance sheets, at mark-to-market
or even at a (somehow magically determined) true value, that they MUST hold the infused TARP money to remain solvent (or as close to solvent as
they can manage) until the toxics are completely out of the system. That probably means "another trillion, maybe two." Perhaps this "another trillion,
maybe two" could be better spent?
I recently heard a proposal; I wonder how sound it is. It is to, instead of burning all the rescue money on failed-but-too-big-to-fail institutions, to use the
"another trillion, maybe two" to REPLACE the failed old ones with brand new companies with clean balance sheets, unafraid to lend normally and
more to the point, with others unafraid to lend to them. Once such new big banks are up and running, let the old ones die without so much as another
dime infused. That way, our markets will not collapse because the new banks will fill the void created. No sense throwing good money after bad, is
there? And the excesses of the old ways will be punished, as will the shareholders, bondholders, and others who fell for the "new genius
moneymaking securitized timebombs". Or as Warren Buffet called them, "Weapons of Financial Mass Destruction". Prescient, or what?! One thing I
would want to consider is whether to contain the bloodletting mostly to within our borders, or try to make other countries (those on whom we depend to
buy Treasuries, for example) somewhat whole so they might deign to do future business with us.
I read recently in the Economist about how financial devices (money included) have evolved over the ages in a kind of Darwinian manner. This is not
merely a metaphor, it is reality. To make room for the new (hopefully better) devices, systems and institutions, the old ones must die and perhaps go
extinct. It is all part of the renewal process. Dinosaur banks and systems MUST be allowed to die. It is NOT AN OPTION or we will be stuck in
stagnation for generations.
As for the disgraced former financial geniuses, DO ban them from the new banks and any part of the new financial system, at least the CEOs, CFOs,
and boards.
Furthermore, make them disgorge their ill-gotten gains, as well. Maybe their is no particular criminal charges that will stick (after all, stupidity is not a
crime), but civil lawsuits based on misrepresentation or somesuch (by harmed governments, companies and individuals) are certainly an option - can
you imagine being the target of a class-action lawsuit like that?. Not me!
I heard Alan Greenspan recently utter the most stupifying thing, "I have made a mistake.... I thought house prices could (or did he say would?) never
go down." What a JOKE! Who and what is he covering up for, by being the fall guy? Greenspan is a genius, and he of ALL people should know
better. So what is up with that? I used to think higly of Greenspan. Now that I learn that it was in large part his doing that the money supply was so
artifically loose that low interest rates created a housing all-but-bubble, I no longer do. That is so pro-inflationary that he has clearly NOT met his
assigned responsibilities to our nation. He needs to be among those prosecuted and sued.
I have one more rant. It seems to be an open secret that our supposed government financial statistics (CPI, inflation, GDP, etc.) are so politicized as
to be meaningless. If they were merely fudged, that is one thing. They are now fantasy. How can we manage a country, an economy or our own
affairs based on faulty information like that??? I hope the Obamanauts take notice and straighten that situation out.
Respectfully,
Keith Labrecque
Labrecque & Associates
We Buy Houses...FAST!
502-426-0014
Submitted by Keith Labrecque on January 17, 2009 - 11:33am.
Hmm, the formatting seems goofed up in my post. Sorry for the duplicate post, but I pasted the above in form Notepad, and it looks crazy. (I'll try again differently - now it looks better to me!)
Lou, Thanks for the Plain talk, calling it like it is - don't stop! Right now we as a nation NEED BLUNT TALK.
That said, this whole thing is probably a lot more complicated than we would like to admit (or may ever understand), but I like the part of the bottom line as you put it:
"No matter how able the Obamanauts, we're not going to get anywhere until these imperial CEOs, their co-conspirators, and especially their boards of directors face public disgrace. There will be no end to decadence until there is a personal price for undermining our society for the sake of ego, transcending mere greed. Remove these people, and forbid them ever again to lead or sit on the board of a public institution."
We have to recognize that banks of any stripe won't lend right now unless they have HIGH confidence in the borrowers not defaulting - and for the bloodied big guys, it IS truly a matter of life and death (wether this should be publicly admitted or not just yet, I am not sure - see below). What this signals to me (correct me if I am wrong) is that there is SO MUCH MORE toxic stuff in their portfolios (on or off the balance sheets, at mark-to-market or even at a (somehow magically determined) true value, that they MUST hold the infused TARP money to remain solvent (or as close to solvent as they can manage) until the toxics are completely out of the system. That probably means "another trillion, maybe two." Perhaps this "another trillion, maybe two" could be better spent?
I recently heard a proposal; I wonder how sound it is. It is to, instead of burning all the rescue money on failed-but-too-big-to-fail institutions, to use the "another trillion, maybe two" to REPLACE the failed old ones with brand new companies with clean balance sheets, unafraid to lend normally and more to the point, with others unafraid to lend to them. Once such new big banks are up and running, let the old ones die without so much as another dime infused. That way, our markets will not collapse because the new banks will fill the void created. No sense throwing good money after bad, is there? And the excesses of the old ways will be punished, as will the shareholders, bondholders, and others who fell for the "new genius moneymaking securitized timebombs". Or as Warren Buffet called them, "Weapons of Financial Mass Destruction". Prescient, or what?! One thing I would want to consider is whether to contain the bloodletting mostly to within our borders, or try to make other countries (those on whom we depend to buy Treasuries, for example) somewhat whole so they might deign to do future business with us.
I read recently in the Economist about how financial devices (money included) have evolved over the ages in a kind of Darwinian manner. This is not merely a metaphor, it is reality. To make room for the new (hopefully better) devices, systems and institutions, the old ones must die and perhaps go extinct. It is all part of the renewal process. Dinosaur banks and systems MUST be allowed to die. It is NOT AN OPTION or we will be stuck in stagnation for generations.
As for the disgraced former financial geniuses, DO ban them from the new banks and any part of the new financial system, at least the CEOs, CFOs, and boards.
Furthermore, make them disgorge their ill-gotten gains, as well. Maybe their is no particular criminal charges that will stick (after all, stupidity is not a crime), but civil lawsuits based on misrepresentation or somesuch (by harmed governments, companies and individuals) are certainly an option - can you imagine being the target of a class-action lawsuit like that?. Not me!
I heard Alan Greenspan recently utter the most stupifying thing, "I have made a mistake.... I thought house prices could (or did he say would?) never go down." What a JOKE! Who and what is he covering up for, by being the fall guy? Greenspan is a genius, and he of ALL people should know better. So what is up with that? I used to think higly of Greenspan. Now that I learn that it was in large part his doing that the money supply was so artifically loose that low interest rates created a housing all-but-bubble, I no longer do. That is so pro-inflationary that he has clearly NOT met his assigned responsibilities to our nation. He needs to be among those prosecuted and sued.
I have one more rant. It seems to be an open secret that our supposed government financial statistics (CPI, inflation, GDP, etc.) are so politicized as to be meaningless. If they were merely fudged, that is one thing. They are now fantasy. How can we manage a country, an economy or our own affairs based on faulty information like that??? I hope the Obamanauts take notice and straighten that situation out.
Respectfully,
Keith Labrecque
Labrecque & Associates
We Buy Houses...FAST!
502-426-0014
keithl999-inman03@yahoo.com
Submitted by Bill Fooks on January 20, 2009 - 4:45am.
Bill Fooks
TFT realty Marketing Service
Warwick, RI http://www.fooksteam.com
Let the market rule. Blunt talk is just like a free market. When things are working good no one complains. Now we all holler. The market will get rid of these people. It should have happened before, but the good times kept everyone blind.Now the market is cleaning itself and we want the government to step in. Shame on us.They are the ones who helped cause this problem, and now we expect them to fix it. They will protect their backsides and blame everyone else. This is because we are to ignorant to dig up all the info ourselves.