Thursday, February 19, 2009

Reboot the: Banks, US?

"Everyone agrees that the [US] urgently needs a few good banks. Turning bad banks into good banks is a difficult and risky way to get them. It's simpler and safer to start entirely new banks. In this context, 'good' means a bank with assets and liabilities that are easy to value using market prices. At a good bank, officers, regulators, and investors can be confident about the value of the bank's capital. ... Proposals for turning existing banks into good banks--recapitalizing them, transferring the toxic assets off their balance sheets, or insuring the toxic assets--require prices for all these hard-to-value assets or, worse still, prices for derivative contracts on the toxic assets. (Calling the derivatives 'insurance' doesn't make them any easier to price). ... With a return to a clearly articulated and familiar pattern of bank regulation, investors from the private sector could invest in the banking sector without fear that they will be competing with zombie banks that receive ongoing subsidies and transfers from the taxpayers. ... The government should move first and signal unambiguously that new banks with at least $350 billion worth of capital will enter the market quickly. Over time, the private sector will deliver on this commitment. The government's role is merely to act as a temporary bridge. ... Banks that are not visible, the ones with liabilties that substantially exceed their assets, will lobby vociferously against a return to historical patterns of bank regulation. They will say anything to postpone a looming FDIC takeover. The administration should not listen to threats and pleas from these doomed banks. It does not have to rely on them to get new lending going quickly and on a large scale. New entrants could give us a few good banks. That, plus an FDIC that can do its job, is all we need", Paul Romer at the WSJ, 6 February 2009, link:

"Lawmakers seized on a government watchdog's assertion that the Treasury Department may have significantly overpaid for its investments in financial institutions, saying the government shouldn't benefit the banking industry at the expense of taxpayers. Speaking at a Senate Banking Committee [SBC] hearing Thursday, Elizabeth Warren, the head of a congressional oversight panel that oversees [TARP], said the Treasury failed to price for risk and paid 'substantially more' for assets it purchased under the $700 billion financial-rescue program implemented last year than their market value at the time. ... The criticism underscores a key tension complicating the Obama adminstration's financial-rescue efforts: how to stabilize the financial system without appearing to hurt taxpayers", my emphasis, Michael Crittenden and Deborah Solomon (C&W) at the WSJ, 6 February 2009.

"'Treasury simply did not do what is said is was doing,' Ms. Warren said at a hearing before the [SBC]. Neil M. Barofsky, another watchdog for the program, told the [SBC] his office was turning to criminal investiogations. 'That's going to be a large focus of my office,' he said", NYT, 6 February 2009, link:

"i expect that for the glitterati of the central banking community is washington, the sheer scale of the financial disaster facing western civilization has already sunk in. ... it may have surprised [Zimbabwe Ben] and his compatriots initially, to see the sum of seventy years' of economic thought regarding monetary policy smashed and tossed aside by the reality of a massive deflationary unwind; but i sincerely doubt he still denies the truth. for what its worth, bernanke has been a much less prominent figure since the failure of lehman brothers--and i think that is not an accident. ... this level of realization, though, probably still eludes the carnival of lawyers known as congress. anedotal reporting from interested financial parties regarding the competence of our legislative body in this crisis have been uniformly appalling--even the leadership on relevant banking committees apparently have utterly no understanding of what has actually happened, much less what is likely to happen or how it might be remedied. such cluelessness in combination with slavish devotion to deep-pocketed special interests has rendered congress all too easily manipulated by the agents of wall street, embodied first in hank paulson and now his successors larry summers and tim geithner. the result has been straight government handouts to the monied classes behind the banks with no prospect of a resolution to either the financial or the economic crisis. ... it gives me little pleasure to point to newt gingrich, an architect of division and fraud if one has ever sat in the capitol, as he puts record to something like the truth. ... 'Gingrich's harshest words were reserved for recently confirmed Treasury Secretary Timothy Geithner, whom he mentioned repeatedly as a symbol of the government and business class refusing to learn lessons. "Geithner is fronting for the banks. Frankly, that's what I think Paulson ended up doing. Paulson ended up being a Wall Street deal-maker who was happy to take your money to bail out Wall Street deal-makers. ... What we have to do is look at the very simple question: 'What is it going to take to succeed in the world market, how do we reset the American economy, how do we get rid of the wreckage, and how do we start growing a new generation of institutions?' ... The political class has panicked, [it did not ask], "What's gone wrong, how do you reset the system and how do you realistically expect this system to operate in the world market in the future?",'," my emphasis, gaius marius, 8 February 2009 at

I largely agree with Romer. I would go further. I would "just say no" to bailouts for existing banks and direct them to federal bankuptcy court. Disagreeing with Yves Smith. It's too late flor half measures. Dropping nuclear weapons on Manhattan is required such that nothing of the old system remains. Storm the Bastille!

C&W hit the key issue: how can Obama's adminstration defraud the taxpayers. My answer: cook: the banks' and TARP's books! I'm sure the Big 87654 will accommodate Obama & Co. Why was Warren surprised? TARP, MLEC 2.0, was designed to enable Hank Paulson (HP) , formerly of Goldman Sachs to overpay for assets and not account for them properly. Fraud is now official government policy. What did Bernie Madoff do that was so terrible anyway?

Will Barofsky start by pressing Eric Holder to indict HP? If not, why not?

"Carnival of lawyers", I love it. Gingrich asks, what must be done to "reset the American economy". Reset? Did someone just call Mencius Moldbug? I suspect there are many people in Washington who know what must be done, but none has the cojones to say it.


Anonymous said...

Hank Paulson protecting his Wall Street colleagues?

Nah... say it ain't so...

Wall Street meltdown

winged unicorn said...

carnival of lawyers? how droll!

evokes images of carnivale masks a la venice: frightening, evil, not to be allowed in the same room s small, impressionable children.

my preference for a grouping of lawyers is the same as for a grouping of crows, also low-grade scavenger beasts with pretensions to be vultures:

a murder of lawyers.

it also describes what might not be a bad idea to do with the majority of them.

[daddy and brother david excepted of course. oh. yeah. they're already dead. never mind!]