So I know this may be a little twisted, but there are a few things more fun for me than being attacked by right wingers. I consider it one of the greatest honors of my life that I have been attacked by Rush Limbaugh (4 times by name), Sean Hannity, Cal Thomas, and Paul Weyrich, and even had an "expose" of me done by National Review. I get a little thrill every time it happens.
It happened again today, this time as a way of attacking the New Way Forward movement, and as usual, they got the most basic facts in their article wrong. A reporter named Judi McLeod, whose work (according to her byline) has appeared on the aforementioned Limbaugh along with Newsmax.com, Drudge, Fox News, and Glen Beck, "broke" the following news flash:
I agreed this week to become an honorary co-chair of A New Way Forward, a spontaneous grassroots movement that is reminding me of the early days of MoveOn.org. This impressive group of passionate organizers got involved because they were listening to progressive economists and business leaders talk about alternatives to the Geithner plan on re-building the banking system, and they decided to get involved. Some of these organizers are old hands like Joe Trippi (who truly is an old hand - I met Trippi when he was helping Walter Mondale in Iowa in 1983, and he already seemed like an old hand then) and Zephyr Teachout of Dean campaign fame, and some are relative youngsters like Tiffiniy Cheng.
I agreed to become a co-chair in part (of course) because I strongly support the principles for banking policy that they have laid out - the same ones supported by all of the economists and economic policy thinkers I respect the most, people like Paul Krugman, Dean Baker, Joe Stiglitz, William Greider, Simon Johnson, Jamie Galbraith, Leo Hindery, and Rob Johnson. But I also agreed to help because the spontaneous passion and obvious organizing skill, completely unsupported with money or institutional DC help, reminded me of the early days of MoveOn.org. Before there was ever the online organizational giant of MoveOn.org, it was a simple internet petition written and put online in the living room of Wes Boyd and Joan Blades and forwarded to a few of their friends. Wes and Joan didn't know anything about how Washington, DC works, or how a PAC operated, or how a poll was conducted. They didn't have any money or institutional support when they started, although a few of us in DC recognized their potential and lent a helping hand. All they had was their passion about an issue (in that case, the impeachment fight) and great instincts about online organizing.
While A New Way Forward does have some old hands at online organizing involved, their spontaneous passion about their issue and their creating a protest with national implications with no financial or institutional support reminds me exactly of MoveOn.org's launch 11 years ago. It also reminds me of the practically spontaneous mass street demonstrations done in 2005 on the immigration issue by prominently young Hispanic organizers mostly driven by text messaging.
One of the reasons I am so excited about A New Way Forward is that this approach to organizing a campaign around the banking issue is exactly what is needed. Traditional DC organizations were always going to be reluctant to get into this fight. For one thing, very few DC organizations work on banking and finance issues. For those that do, they are deeply engaged in working with the White House to get the budget and health care reform passed, and don't want to throw cold water on that White House relationship.
Here is the information about the April 11th rallies. I will be speaking at the one in DC, but please don't let that discourage you from coming. My message will be simple: I support Barack Obama, support his budget and his agendas for health care and climate change and immigration reform and the Employee Free Choice Act. But on banking policy, we need A New Way Forward.
The way Tim Geithner has structured the banking plan, the Obama administration will, sooner or later, almost certainly be facing another AIG bonuses type of outrage. For example, Dean Baker told me that his biggest fear is that some sleazy character will make a fortune off the leverage given by the government, or that a bank will arrange an insider deal under which a front buys its assets at an inflated price, leaving the government with a big loss.
If this happens, I can already hear the cries of the faux populists in the Republican Party, those same folks who created this crisis with their opposition to regulatory oversight of Wall Street. If they were still in charge, we'd be having one of these kinds of scandals every week. But they will be full of howling indignation that Obama let this happen.
Those of us who are opposing this bank plan, in part because we are worried of just these kinds of scandals described above, will need to restrain ourselves from doing too much I-told-you-so-ing, because we will need to be helping to save the Obama team from themselves. We need to be ready, though, to step into the moment with our own very aggressive plan to put the banks into receivership and break them up. No matter how populist Republicans will want to pretend they are, they will never be willing to actually do something that progressive. If Obama is willing to go there, and do it decisively, it will help Obama to get over all the recriminations and saber-rattling that inevitably happens in such a moment.
I very much wish that Obama was moving bolder and more progressive in dealing with the banking crisis. To paraphrase a friend, I feel like he is giving mouth-to-mouth resuscitation to a system that needs to die. But if we are to get through the problems that will almost inevitably come from the Obama/Geithner plan, those of us who want to save Obama's agenda need to be ready with a strategy to turn things around ASAP when another scandal flares. Unlike Bush, Obama is smart enough to change direction when something isn't working, and progressives need to be ready to help him when that day comes.
We Americans dwell in a consumer plutocracy, and the plutocrats don't even bother to be cute about it any more. Barack Obama, hailed by the geniuses of new media as a populist saviour, has surrounded himself with a team that was already bought and paid for by the financial services industry before they ever walked into the White House.
Larry Summers collected $5.2 million last year from his part-time job with a hedge fund.
$5.2 million for a part-time job!
One day per week!
"And just in case you ever get a big job in Washington, Larry, remember who your friends are!"
George W. Bush remembered his friends who paid him $15 million on a $600K investment in a baseball franchise, and Barack Obama remembers his friend Penny Pritzker, the Queen of Sub-Prime Lending, chief financial officer of his Senate and Presidential campaigns, and Rahm Emanuel remembers his friends among the investment bankers at Wasserstein Perella, who paid him $16.2 million for two years of "work," and it isn't easy to figure out exactly what "work" that was, because Rahm Emanuel was a speech and communication major at Sarah Lawrence and Northwestern, and never had any training whatsoever in accounting, or business, or finance... but he always knew how to follow the money, as a fundraiser for Richard Daley and Bill Clinton, and now Rahm has followed the money all the way to his current job as Chief of Staff and gatekeeper outside the Oval Office.
"If you ever get a big job in Washington, Rahm, remember your friends!"
And the friends remember, too. They remembered Bill Clinton for signing Gramm-Leach-Bliley, and paid him $40 million for speaking, in 2007, alone, and the same friends already remember Tim Geithner.
Tim Geithner is "[a] very unusually talented young man...[who] understands government and understands markets," says Henry Paulson, who gave away more money to the banks than anybody in the history of the world... except Tim Geithner, Larry Summers, Rahm Emanuel, and Barack Obama.
Some new data suggests Americans hold a negative opinion about the state of the country and are optimistic as well. How can this be? At least two explanations are possible and there's data for each:
1. People are unhappy about how things are going now but hopeful about the future.
and/or
2. The country is split. Some optimists, some pessimists.
The latter split, according to one report, is not along party lines but a split between populists and the "ruling class." Details ahead.
Over the past few weeks, it's been pretty common for people like me, who have favored bank take-overs, to be portrayed as favoring a more "radical" approach to dealing with the financial crisis--and in one sense, that's certainly true. "Radical" comes from the Greek "radic", meaning "root", and radicals are those who want to solve problems at their roots. While bank takeovers might not really get at the roots of the problem, they'd certainly get us closer to the roots, so in that sense, it's a more radical approach.
But it's also a more conservative approach, too. How can it be both? Simple: this problem we face is severe and systemic. The most prudent, conservative thing to do is it to take action now, not just to repair damage and correct past mistakes, but to ensure against a repeat. And to do that, mere tinkering will not suffice. From The Compulsive Theorist:
Why a second best bailout may not be good enough
....
Two things about the aetiology of the crisis stand out. First, perverse incentives for agents within the financial sector played a central role in bringing about the crisis. Second, there were (and remain) issues of poor system design in the financial sector: even perverse incentives might have had limited consequences in a robust system. The problem with the Geithner plan is that even [if] it works in terms of stabilizing the economy in the short-term, it does relatively little (the uncharitable would say almost nothing) to correct either incentives or system design. But the business and cultural norms and system-wide conflicts of interest which form the backdrop to the crisis run deep, and will not change without substantial impetus. It is precisely these deeper issues that we must address if we are to reduce the risk of a re-run of the crisis, probably on a larger scale, in a few years time....
This case can be put very simply: if we do not use current political momentum to fundamentally reform a system which has shown itself to be unstable and even dangerous, a second opportunity may come at a very high price. And this is not a gamble I wish to see our leaders make.
Not gambling: that's being conservative. That's me.
Furthering my point, this same essay links to an article in the Financial Times...
We buy a humongous amount of toxic assets from AIG and its playmates, and pass all their possible losses along to ourselves! What's not to like?
A bad bank makes you and me the patsies for the meltdown. We get the bad stuff. Banks keep the good stuff.
Booooooooo!!!
But in order to save our dear little friends at the banks, all those toxic assets must be bought and sold again somehow, and nobody wants to buy them, except at prices that trigger yet another unimaginably huge crash of derivatives.
Those things are still alive, and they are very, very big. How big?
Bigger than the world!
The notional value of outstanding financial derivatives is more than $600 trillion. How big is that?
The total value of traded securities (debt and equity) denominated in U.S. dollars is estimated to be more than $50 trillion, and the global value of traded securities is about $165 trillion.
Financial derivatives can eat the Planet Earth!
So the monster must be quelled, and "bad bank" is made out of simple monosyllables that even the public can understand. Me no like 'em!
Tim Geithner won't give us bad bank. Bad bank went bye-bye. What we get instead is bad bank in drag!
We get a "partnership" of public and private money, and the only real problem with this particular "partnership" is that we lend our partners almost all the money they need to buy in.
We lend our partners 84% of their half of our "partnership," and guarantee that all they can possibly lose is their 16%. No further exposure! All the rest of the risk of those monstrously risky "toxic assets" belongs to you and me.
So private investors get 50% of the possible upside, and if the wheels come off, they can only lose 16% of their half, which is 8% of the package, but we can lose big time! Toxic assets are toxic because they entail obligations that nobody thought they would ever have to pay... and they didn't! We paid instead.
But under all that pancake make-up and all those petticoats, this is still a "bad bank," except a whopping 8% of the capital supposedly comes from private investors, with limited risk, if they go for it.
But what if they don't?
What if bailout number three is a total non-starter, like bailouts one and two? And this is the beauty part of Tim Geithner's beautiful dream!
There is no back up!
Thanks to public outrage about AIG bonuses, the other$250 billion that Obama wanted for a backup is not in the budget!
There is no back up, and if "bad bank in drag" goes down, we all go down with it.
Today the Dow Jones was up almost 500 points and that means Tim Geithner and Barack Obama are geniuses. I went to Sean Hannity's site expecting a tribute to our market-moving heroes and all I found was an ad for a Reagan movie produced by Newt Gingrich and a 2012 election countdown clock. Not sure why they're counting down the days to another ass kicking but they are. Seems they're just conceding the 2010 races because there's no countdown for that.
So I went to Rush Limbaugh's site to see if he was tipping his hat to the President but it seems he is still talking about Obama's Special Olympics flub and may have overlooked the greatest day in Dow 2009 history. Wait, isn't he the guy who mimicked Michael J. Fox's Parkinson's symptoms? Yup.
The biggest drag on the market is still the Fox Business Channel which continues to pull the market in a predominantly negative direction. On Oct. 14, 2007, the day before their debut, the Dow stood at 14,093. The next day Fox Business goes on and the market drops 100 points. That was a key indicator of the negative power of Fox Business News. Every week since the market has lost an average of almost 100 points.We won't get a full Dow recovery until we get Fox Business Channel off the air. We need a countdown clock for that.
The Obama administration is now completely wedded to the idea that there's nothing fundamentally wrong with the financial system - that what we're facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.
In a later post, Krugman went on to further clarify: there are two basic reasons for bank failures--the run on a sound bank is just one of them, and it's the one the Geithner plan is based on. But it's not the problem we're facing:
Why was I so quick to condemn the Geithner plan? Because it's not new; it's just another version of an idea that keeps coming up and keeps being refuted. It's basically a thinly disguised version of the same plan Henry Paulson announced way back in September. To understand the issue, let me offer some background.
Start with the question: how do banks fail? A bank, broadly defined, is any institution that borrows short and lends long. Like any leveraged investor, a bank can fail if it has made bad investments - if the value of its assets falls below the value of its liabilities, bye bye bank.
But banks can also fail even if they haven't been bad investors: if, for some reason, many of those they've borrowed from (e.g., but not only, depositors) demand their money back at once, the bank can be forced to sell assets at fire sale prices, so that assets that would have been worth more than liabilities in normal conditions end up not being enough to cover the bank's debts
Behind all the complex razzle-dazzle, this is the basic question here: what kind of bank failure do we have? And there really doesn't seem to be much question about that. The term "toxic assets" gives you all the answer you need: the problem is the assets themselves, not a run on basically sound banks. That's why the troubled banks can't be saved as they currently exist.
Much of the news these days--the AIG fiasco, Geithner's flawed bailout plan, the financial crisis itself--points to a single essential truth: Wall Street rules. The GOP's subservience to Wall Street is longstanding and unmatched. But Wall Street also holds power over the purported party of the people, most notably in form of Robert Rubin and his acolytes. It's fair to call Wall Street, as Robert Kuttner does, the Democratic Party's most powerful interest group. Which would be horrrendous even if Obama weren't trying to solve a financial crisis that Rubin and his acolytes helped to create.
Glenn Greenwald has recently posted a very abstract jeremiad about our corrupt "establishment," with multiple concurring citations from Atrios,Paul Krugman,Matt Taibbi,Armando, (Big Tent Democrat on TalkLeft), and even Eliot Spitzer, recently returned from the dead by a collective realization that he was right about everything.
Our "establishment" is corrupt, and public outrage about the AIG bonuses is a very good thing, because it scares the corrupt "elite," and fear is the only force that can control those monsters.
This is only half right, as far as it goes, but it doesn't go quite far enough, and stops at a politically safe distance from the Oval Office, which is exactly where the buck is supposed to stop, and where Barack Obama continues to enable and support the most corrupt financial "establishment" since exactly the same corrupt "establishment" produced the Great Depression.
The whole chorus is singing in unison about the corruption of Henry Paulson and Tim Geithner, and somehow forgetting that Mr. Obama was already supporting humongous give-aways to corrupt banks in their most blatant conceivable manifestation, during his last debate with John McCain, when he endorsed Paulson's grab at an absolutely unrestricted mountain of money, $700 billion, and it wasn't just a blank check that Obama wanted Congress to sign over to Paulson... it even included pre-emptive immunity from prosecution!
Last September, Treasury Secretary Paulson, from Goldman Sachs, drew up a terse 3-page memo outlining his bailout proposal. The plan specified that whatever he and other Treasury officials did (thus including his subordinates, also from Goldman Sachs), could not be challenged legally or undone, much less prosecuted. This condition enraged Congress, which rejected the bailout in its first incarnation.
It now looks as if Paulson had good reason to put in a fatal legal clause blocking any clawback of funds given by the Treasury to AIG's counterparties. This is where public outrage should be focused.
Instead, the leading Congressional shepherds of the bailout legislation - along with Obama, who came out in his final, Friday night presidential debate with McCain strongly in favor of the bailout in Paulson's awful "short" version - have been highlighting the AIG executives receiving bonuses, not the company's counterparties.
So Obama was already on board the gravy train for Goldman Sachs and AIG on October 15, 2008, and celebrating "the financial rescue plan that Senator McCain and I supported," with zero accountabilty, and not even the foggiest idea where the money would go, except wherever Henry Paulson wanted to put it.
And now that Mr. Obama is driving that gravy train, instead of just tooting its whistle in Congress and Presidential debates, it just keeps rolling faster and faster, with yet another trillion dollars on track for "quantitative easing," yet another exotic financial device that almost none of us had ever heard of, only a few weeks ago.
I'm glad that the AIG bonuses have finally waked up a little outrage in the slumbering public, and I'm glad that Krugman and James Galbraith and Glenn Greenwald and Atrios are denouncing the corruption of our governing "elite," or "establishment," or whatever they choose to call it, but it's absurd to denounce so many soldiers and under-bosses of our homegrown financial mafia, and yet leave out the kingpin of the whole operation, the capo di tutti i capi, Barack Obama, the infinitely generous godfather of the most blatantly corrupt mob of financiers since an almost identical gang of thieves produced the Great Depression.
Is Tim Geithner another bad choice, like Rick Warren, that Barack Obama is simply incapable of recognizing, admitting and acting on? And is his unwillingness to recognize this a symptom of some much deeper problem with how he will govern? I fear it very well could be.
There was a headline at Huffington Post, it's gone now--I blinked and it went away--but it made a sharp impression before it was replaced with something far more benign. I forget the exact wording, but basically it was the Obama told 60-Minutes there was no way he was letting Geithner go. It came across like it was a point of honor with him. And I had a sinking feeling in the pit of my stomach when I saw that.
Obama fends off Geithner doubters
US Treasury Secretary Timothy Geithner will not be allowed to resign amid criticism of his short term in office, President Barack Obama has said.
Mr Obama told CBS News he would turn down any offer by Mr Geithner to quit, and would tell him: "Sorry, buddy, you've still got the job."
I'm having a flashback right about now, to Barack Obama posting a diary at Daily Kos, telling all us dirty fucking hippies to lay off his buds in the Senate. That was the first instance when Obama used his popularity with the Democratic base to shield his personal friends from justly earned criticism--criticism that had nothing, necessarily, to do with them as private people, and everything to do with their public duties.
Then, there was his still-unexplained infatuation with Rick Warren....
In order to protect its bailout plan, the Obama administration protected the bonuses.
Back in January and February, there were some votes to try and block excessive employee compensation at financial institutions receiving bailout money. In the Senate, this took the form of the Snowe amendment, which was supported by all 58 Democrats, and also by three Republicans. In the House, it took the form of the TARP Reform Act, which was favored by 242 Democrats and 18 Republicans. Overall, across the House and the Senate, only 10 Democrats, compared to 193 Republicans, voted against legislation that might have stopped the bonuses.
Unfortunately, despite overwhelming Democratic support for limiting executive compensation, in order to save their public-private partnership bailout plan, the Obama administration worked against these limits:
As word spread Friday about the new and retroactive limit -- inserted by Democratic Sen. Christopher Dodd of Connecticut -- so did consternation on Wall Street and in the Obama administration, which opposed it.(...)
The administration is concerned the rules will prompt a wave of banks to return the government's money and forgo future assistance, undermining the aid program's effectiveness. Both Treasury Secretary Timothy Geithner and Lawrence Summers, who heads the National Economic Council, had called Sen. Dodd and asked him to reconsider, these people said.
Tim Geithner's public private partnership plan caused the AIG bonus scandal. This is because Geithner's plan needs voluntary private participation and, as many of those private investors and institutions have made clear, they won't join in if their compensation packages are threatened:
Officials at the Federal Reserve and the Treasury Department are increasingly worried that the controversy could discourage investors from joining a new government effort to revive consumer lending as well as a separate plan that relies on private money to buy toxic assets from banks, sources familiar with the matter said.(...)
A senior executive at one of the nation's largest banks said he had heard from several hedge funds that they would not partner with the government for fear that lawmakers would impose retroactive conditions on their participation, such as limits on compensation or disclosure requirements.
As such, on behalf of the Obama administration, Tim Geithner and Larry Summers joined with congressional Republicans to block legislation that would have retroactively blocked the bonuses. This was done in the hope of securing more private participation in the administration's public-private partnership bailout plan.
This scandal is the direct outcome of Geithner's bailout plan. Because the Obama administration is pursuing a public-private partnership bailout strategy, and because Wall Street wouldn't participate in this plan if their bonuses were threatened, the Obama administration blocked legislation that would have blocked Wall Street bonuses. They really should have pursued temporary nationalization instead.
(Via Jane Hamsher) Back in mid-February during the fight over the stimulus package, Senator Chris Dodd was pushing for retroactive restrictions on bonuses paid to employees of financial companies receiving bailout money. This measure, which would have applied to AIG bonuses, was opposed by both Wall Street and the Obama administration:
As word spread Friday about the new and retroactive limit -- inserted by Democratic Sen. Christopher Dodd of Connecticut -- so did consternation on Wall Street and in the Obama administration, which opposed it.
Both Larry Summers and Tim Geithner personally asked Senator Dodd to remove the retroactive provision, because they thought it meant banks would give the government its money back:
The administration is concerned the rules will prompt a wave of banks to return the government's money and forgo future assistance, undermining the aid program's effectiveness. Both Treasury Secretary Timothy Geithner and Lawrence Summers, who heads the National Economic Council, had called Sen. Dodd and asked him to reconsider, these people said.
Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said.(...)
The administration official said the Treasury Department did its own legal analysis and concluded that those contracts could not be broken. The official noted that even a provision recently pushed through Congress by Senator Christopher J. Dodd, a Connecticut Democrat, had an exemption for such bonus agreements already in place.
Don't forget that Chris Dodd is the most endangered Democratic Senate incumbent in 2010, as he currently trails his Republican challenger Robert Simmons. Hard to imagine how Dodd's re-election chances will be helped by a senior White House source telling the New York Times that Dodd is to blame for the AIG bonuses.
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