The Reasoned Review

Dean Baker gets an excellent catch in what, upon first glance, I thought to be rather solid Washington Post article. Quality from the Post is such a rare beast that I think you’ll forgive me for the mistake. It’s like a guy who gets excited over a bigfoot sighting, but it just turns out to be some hairy guy.

As you probably know, President Obama has hundreds of positions left unfilled within his administration. This is partly due to his not getting around to them, but in large part also due to “Republican” obstructionism, wherein certain senators have placed holds on several key appointments, tossing them into the bureaucratic abyss.

The Post article purports to be about three major posts that Obama has yet to fill in the Federal Reserve and the candidates who may fill them. Now, I’m all for calling attention to Obama’s unfilled administrative positions. They’re a major bottleneck in the bureaucracy and are causing his administration to move sluggishly on matters that urgently need attention – ironically, Federal Reserve issues. It looks as though he’s finally going to bite the bullet and make these appointments during Congress’ recess, which he should have done all along.

So far, so good – it’s all newsworthy. But was it really necessary for The Post to inject yet another ode to Fed Chief Ben Bernanke in its already too-long article? We know how they feel about Bernanke – they’re all for him. If anyone doubts it, I invite you to visit their editorial page. On any given day I guarantee you’ll find some apology for Mr. Bernanke’s malfeasance from one of their establishment cheerleaders.

The phrase in question describes Mr. Bernanke as having “led efforts to make the Fed’s bank oversight more effective and focused on broad risks to the economy that arise out of banks’ decisions.“

Not only is that so vague as to be rendered meaningless, but it is also patently untrue.  “More effective”? “Broad risks”? “Bank’s decisions”? How effective? What risks? Which decisions? These are mistakes one goes over in Reporting 101.

They’re sloppy mistakes, too – and they betray a complete vacuum where the writer’s knowledge of history should be. Aside for Lawrence Summers (current National Economic Adviser, who authored the bill that got us into this mess), Timothy Geithner (current Treasury Secretary, who was #3 at the Fed while the banks turned into casinos), and, of course, Alan Greenspan, Mr. Bernanke is the single biggest reason why 1/4 of the workforce is desperately seeking work.

He actively campaigned against oversight, was completely blind to the risks facing our economy (“The subprime mess is largely contained“), and, in fact, actively encouraged those risks by keeping interest rates at almost zero for three straight years after the dot-com bust. This is a matter of public record. A five minute Google search and articles from The Post itself were enough to reveal this.

What’s worrying is that The Post seems to be unaware of this – or if they are aware, put a willfully misleading clause in their “news” article. I can understand it when journalists lie in the Op-Ed pages; that is, after all, what they’re for. But to put a factually ignorant opinion in a serious news article betrays, I think, some very perverse ethics.

A startling statistic buried within an outstanding New Republic article:

As a result of the crisis and various government rescue efforts, the largest six banks in our economy now have total assets in excess of 63 percent of GDP (based on the latest available data). This is a significant increase from even 2006, when the same banks’ assets were around 55 percent of GDP, and a complete transformation compared with the situation in the United States just 15 years ago, when the six largest banks had combined assets of only around 17 percent of GDP. If the status quo persists, we are set up for another round of the boom-bailout-bust cycle that the head of financial stability at the Bank of England now terms a “doom loop.”

Good god. I knew that these banks were big, but I had no idea they were this big. The New Republic devotes the rest of its article to explaining why Obama’s bank regulations are (surprise!) a sham. But then, we should have already known that. When Treasury Secretary Geithner appeared on Newshour a few days ago, he baldly stated that these new regulatory rules “will not include breaking up the banks“. Forgive me, but what is the point of “regulation” if our banks are allowed to keep their “too big to fail” status and continue to engage in the same practices that brought down our economy in 2008? The so-called Volcker rules do nothing to stymie the relationship between Wall Street and Washington, they do nothing to prevent banks from over-leveraging (as they had during the run-up to the crisis), they allow the banks to retain their gargantuan size… so what were the Volcker rules supposed to do again? Oh yeah, it bans “proprietary trading”, somthing which only accounts for 5 percent of total bank revenue.

Meanwhile, President Obama is proposing yet another giveaway to the banks, this time in the form of $30 billion in loans at below-market interest rates. If I sell you something about below-market value, then I’m giving you a gift. That’s what these “loans” are. The Washington Post attempts to bury the issue in the middle of the piece, and refers to the subsidy as going to “community banks”, without noting that most of these “community banks” have long since been bought up by our banking behemoths.

I don’t really know what else to say here. The banks own Congress; they own the House; they own Obama (check out his campaign donors) – there doesn’t seem to be any way out of this. I think some mobs with torches and pitchforks would not go amiss at this point.

Bloomberg has a good article today about how our favorite Fed Chief, Mr. Bernanke, is trying to allay calls for a Fed audit by offering more “transparency”. Let’s see what he has in mind:

The Fed will support legislation to let government auditors probe six temporary programs created to combat the financial crisis such as the Primary Dealer Credit Facility, Bernanke said yesterday in House testimony. While he would support the delayed release of names of firms getting aid from those programs, he said banks borrowing through the longstanding discount window must be allowed to remain anonymous.

Bernanke’s move toward greater openness may not dissuade lawmakers who want the Fed to disclose more information about the Fed’s lending and policy decisions. Lawmakers are responding to public anger over the Fed’s role in the $182.3 billion bailout of American International Group Inc.

…

“He is definitely trying to defuse the Ron Paul issue,” said Diane Swonk, chief economist at Chicago-based Mesirow Financial Inc., which oversees $37.4 billion in assets. “The best he can do at the moment is to play more offense than defense.”

Does he really expect us to buy this bullshit? If that’s what he calls “transparency”, I’ve got some water from the Ganges to sell him. The whole point of this Fed audit is to see what they did with the money we don’t know about. Specifically, we’d like to know about money that was lent under the table to the European union to prevent it from collapsing. And George Washington, over at ZeroHedge, tips us off to $12 Billion in Federal Reserve dollars (cash money, yo) that mysteriously went to Iraq during 2003-2004. Whom did they send it to? Why? These are the questions an audit is supposed to answer.

Releasing hand-picked data from 6 controversial Fed programs tells us nothing. The flimsy excuse Bernanke gives us for why he shouldn’t be audited is that it would have a “bad effect on markets”, and give the impression that Fed policy is subject to “political pressure”. Hey, idiot! I think that “impression” has already been effectively created. You remember reducing the benchmark lending rate to zero, and then keeping it that way for two years? Yeah, that was pretty much political. And what were the bailouts, then? Oh, yeah, political. Man, this is such a convenient excuse – any time someone suggests oversight, all you have to do is say the word “political” and poof! Oversight vanishes.

The Fed needs a full, meaningful audit if we’re going to get any semblance of economic balance back. These days of unlimited money must end.

Here we go again, with another round of pass-the-buck victim blaming, this time from none other than our favorite NYT columnist, David Brooks. The point of his column, I guess, is that we’re all unemployed because we couldn’t adapt to the “changing economic environment” fast enough. Why is it changing? Stop asking silly questions! All you need to know is that unemployment is nearly 20% and it’s all your fault. David Brooks is sorry, but he wishes you had “adapted” faster to “shifting demands”. If you had, you wouldn’t be “paying the price”.

As he says:

This recession has exposed America’s social weak spots. For decades, men have adapted poorly to the shifting demands of the service economy. Now they are paying the price. For decades, the working-class social fabric has been fraying. Now the working class is in danger of descending into underclass-style dysfunction. For decades, young people have been living in a loose, under-institutionalized world. Now they are moving back home in droves.

Man, this guy would probably blame a rape-victim for dressing “inappropriately” or “not adapting to a fast-changing daylight regime”. So convenient, isn’t it? We’re all unemployed, but guess what? We only have ourselves to blame.

Oh, but what about those short-sighted economists who failed to see a $15 trillion bubble? You know – the ones who, as late as 2007, were on record saying “The subprime mess is contained“? The ones who currently run our economic establishment? Don’t they deserve some blame, Mr. Brooks? Nah.

Speaking of which, wouldn’t you say, Mr. Brooks, that financial journalists, such as yourself, also had a hand in the current unemployment? After all, they shouted the slogan “buy, buy, buy!” long after it became clear that the Dow was terribly overvalued.  They systematically refused to report the grave and serious conversations going on in the halls of Wall Street, even though they knew what was going on.

Or how about this? All those “journalists” who advocated that we cut social spending, and let “the free market” take care of everyone (like *cough* some columnists I know) – you don’t think they deserve some blame for the situation our unemployed workers find themselves in?

Nah, it’s much easier to just blame the workers. So let this be a lesson to you, all ye without steady employment! David Brooks cares about your plight, and wishes it were better! Now get a job, you bums!

Update: Dean Baker agrees.

“We’ve got strong financial institutions . . . Our markets are the envy of the world. They’re resilient, they’re…innovative, they’re flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong.”

- Hank Paulson, Treasury Secretary, March 16, 2008

“We must [enact a program quickly] in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families’ financial well-being, the viability of businesses, both small and large, and the very health of our economy,”

- Hank Paulson, Treasury Secretary, September 23, 2008

The Dark Bernanke has already been reconfirmed in his role as wealth-distributor-in-chief, so I guess this post is somewhat moot, but I really wanted to draw attention to this cheerleading article by Tom Friedman last week, wherein he vigorously – in fact, insultingly – agitates for Bernanke’s reconfirmation as Fed Chief.

The article is entitled, absurdly, “Adults Only, Please“, and I guess his premise is that only petulant, whining children could possibly oppose the bailout king. Mature, thoughtful adults apparently reward and worship abject failure.

He starts with a bizarre doctor analogy:

We’re like a patient that just got out of intensive care and is sitting up in bed for the first time when, suddenly, all the doctors and nurses at bedside start bickering. One of them throws a stethoscope across the room; someone else threatens to unplug all the monitors unless the hospital bills are paid by noon; and all the while the patient is thinking: “Are you people crazy? I am just starting to recover. Do you realize how easily I could relapse? Aren’t there any adults here?”

See? The economy is the patient, and the bickering doctors are all those feckless politicians. And..uh.. I guess the “adult” would be  Bernanke, as he says later in the article. But I think this analogy is missing something. It would be far more accurate if you had Bernanke there as a doctor, but willfully refusing to interpret your symptoms (hemorrhages, coughing up blood, etc.) as anything but signs of the utmost health.

Does anyone remember in 2005 when Bernanke declared “There is no housing bubble!“? Or what about in 2007 when he casually remarked that the “Subprime mess has been contained? Or in early 2008 when he said, “I don’t anticipate any serious problems… the danger seems to have waned…”? The stock market crashed three months after he said this. So which is it, Friedman? Is Bernanke a liar or an idiot? At any rate, if he were a real doctor, and the economy his patient, then we can be sure Mr. Bernanke would have been sued for gross negligence and malpractice.

As Friedman says:

And, finally, don’t forget both the Democratic and Republican senators who have decided to get a quick populist boost by turning one of the few adults we have left — Federal Reserve Chairman Ben Bernanke — into a piñata. No, Mr. Bernanke is not blameless for the 2008 crisis. But since then he has helped steer the country back from the brink and kept us out of a depression. He absolutely deserves reappointment.

It’s so easy to slide over Bernanke’s role in all of this by casually remarking, “Well he’s not blameless, but…” This line of reasoning completely misses the point. As Fed Chief, it’s Bernake’s job to study data, identify perturbations, and warn against upcoming bubbles. What, was his head in the sand the entire time? He failed miserably in his primary role! It’s also his job to secure full employment, something which he certainly hasn’t done. 25% underemployment is not full employment, but considering that Bernanke apparently lives in some kind of Bizzaro-universe, I suppose he’s convinced himself it is.

As Dean Baker says, real adults hold each other accountable for miserable job performance. Children write one-sided op-eds bereft of research or perspective, clearly designed to promote a corporate-centric worldview. Remember, Goldman didn’t exactly object to Bernanke’s confirmation.

One year into his prophesied presidency, Mr. Obama addressed the nation on the issues he thinks plague it the most. The speech was 5 parts economy, two parts health care, one part budget, and a few throwaway references to “national security” and Haiti thrown in as well (for spice). Unsurprisingly, the speech was a hit with the mainstream commentariat. The inimitable Joe Klein seemed to think this was “Obama at his best“; Yglesias, of course, thought it was “just great”; and Greg Sargent praised its “mix of charm and good humor”. As we all know, the main things our belaguered republic lacks at this juncture are “charm” (and/or) “good humor”.

I guess nobody took notes on what Mr. Obama said, as the reactions I’ve seen are based on qualitative nonsense (“How did he look? Was he friendly? Did he get the Republicans’ goat?”) A shame, because a close reading of the text of the speech reveals evasions, inconsistencies, and, at times, willful manipulation of data. Let’s dive in, shall we?

As Mr. Obama said early on, “It begins with the economy”.

Our most urgent task upon taking office was to shore up the same banks that helped cause this crisis. It was not easy to do. And if there’s one thing that has unified Democrats and Republicans, and everybody in between, it’s that we all hated the bank bailout. I hated it — (applause.) I hated it. You hated it. It was about as popular as a root canal. (Laughter.)

…

So I supported the last administration’s efforts to create the financial rescue program. And when we took that program over, we made it more transparent and more accountable. And as a result, the markets are now stabilized, and we’ve recovered most of the money we spent on the banks. (Applause.) Most but not all.

To recover the rest, I’ve proposed a fee on the biggest banks. (Applause.) Now, I know Wall Street isn’t keen on this idea. But if these firms can afford to hand out big bonuses again, they can afford a modest fee to pay back the taxpayers who rescued them in their time of need. (Applause.)

Did you really hate it so much, Mr. Obama? I mean, the largest contributors to your campaign were financial institutions, and they certainly didn’t hate it. And your Treasury Secretary, Timothy Geithner, was practically appointed by Goldman Sachs, and went on to distribute trillions of untraceable dollars to unknown banks. He certainly didn’t hate it. Especially when your read about how Geithner willfully colluded with AIG to defraud the taxpayers of billions, it just seems like you’re making up all this populist “oh I hated it but it had to be done” nonsense ex post facto.

You’re well aware that the largest banks consider your so-called “bank fee” a joke, and that the $90 billion you plan to extract from them doesn’t cover 1/100th of the total money their malfeasance lost our economy. Also, paying back the government was stipulated in the TARP to begin with. When the banks accepted the money back in September ’08, they did so with the knowledge that they’d eventually have to pay it back. So all this “fee” does is force the banks to uphold the contract they already signed.

Moreover, you are well aware what $90 Billion won’t even cover the current outstanding bank debt. As Propublica reports, the net outstanding in the TARP program is $316 Billion. Not $90 Billion.

Concerning the “Recovery Act”:

The plan that has made all of this possible, from the tax cuts to the jobs, is the Recovery Act. (Applause.) That’s right -– the Recovery Act, also known as the stimulus bill. (Applause.) Economists on the left and the right say this bill has helped save jobs and avert disaster. But you don’t have to take their word for it.

Talk to the small business in Phoenix that will triple its workforce because of the Recovery Act.Talk to the window manufacturer in Philadelphia who said he used to be skeptical about the Recovery Act, until he had to add two more work shifts just because of the business it created. Talk to the single teacher raising two kids who was told by her principal in the last week of school that because of the Recovery Act, she wouldn’t be laid off after all.

Or you can talk to this guy, who got a $24 million stimulus award after numerous accusations of bribery. Or you could talk to this crumbling school district unable to access its stimulus funds for “bureaucratic red tape”. Or, again, these six companies, currently under criminal investigation, who nevertheless received $30 million from your free money giveaway. As Mr. Obama says in his speech,

There are stories like this all across America.

Right.

But what about clean energy? Well, he’s glad you asked:

But to create more of these clean energy jobs, we need more production, more efficiency, more incentives. And that means building a new generation of safe, clean nuclear power plants in this country. (Applause.) It means making tough decisions about opening new offshore areas for oil and gas development. (Applause.) It means continued investment in advanced biofuels and clean coal technologies. (Applause.) And, yes, it means passing a comprehensive energy and climate bill with incentives that will finally make clean energy the profitable kind of energy in America. (Applause.)

You clearly aren’t a scientist, Mr. Obama, because those suggestions don’t make a lick of sense. As I’m sure you’re aware, no nuclear plant has ever been built on time or on budget. Ever. “Breeder Reactors” are still an experimental technology, and there is no safe way to dispose of the waste current reactors produce. What should we do with “zombie reactors” – those crumbling ’70s-era nuclear plants we can’t find the budget to inspect? They constantly break down, and constitute a major public health risk.  Shouldn’t we do something about those, first? Oh yeah, “Spending Freeze”. Well, I guess we can do like the French and just dump our N-waste in Russia.

As for “Clean Coal”, your colleague Al Gore called that a “lie” months ago. There is no such thing as clean coal. You know it and I know it. But, as you and the coal lobby so fervently hope, the American public doesn’t know it. And let’s not even mention the world food crisis your vaunted “advanced biofuels” had a hand in creating. Or the massive deforestation now going on in Brazil and Indonesia to meet our “advanced biofuels” demand. That technology is wasteful, inefficient, and impracticable. Europe would have to use 70% of its landmass exclusively for biofuel crops in order to meet its energy demands. America doesn’t even have enough landmass to grow enough biofuels to meet its demands. And never mind that the distillation of biofuels requires orders of magnitude more energy than we get from them.

We move on to Health Care:

After nearly a century of trying — Democratic administrations, Republican administrations — we are closer than ever to bringing more security to the lives of so many Americans. The approach we’ve taken would protect every American from the worst practices of the insurance industry. It would give small businesses and uninsured Americans a chance to choose an affordable health care plan in a competitive market. It would require every insurance plan to cover preventive care.

It would also require every American to purchase health insurance, whether they want it or not (indeed, whether or not they can afford it) – but that’s not a popular aspect of the bill, so we better not mention that. In fact, given your recent defeat in Massachusetts, it’s probably better we move on altogether.

So now let’s talk about… the deficit!

Starting in 2011, we are prepared to freeze government spending for three years. (Applause.) Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will. Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don’t. And if I have to enforce this discipline by veto, I will. (Applause.)

So your plan is to cut everything but the three biggest contributors to the deficit? How is that a good idea? And is “national security” really something we “need” at this point? You are aware, I’m sure, that we spend on the order of $1 trillion per year prosecuting our misbegotten murder rampages in Iraq, Afghanistan, Pakistan, Yemen, Somalia, and whomever else wish to inflict misery upon.This spending benefits no one, and it demonstrably makes us less safe. You think that might be something we would “cut” if we were trying to save money. I really can’t stress this point enough. We spend the equivalent of South Korea’s GDP murdering Arabs. This is completely baffling to me. Would a “cash-strapped family” really refuse to “sacrifice” its largest and most wasteful expenditure that also happens to actively harm it?

But it’s not just a “deficit of dollars” – it’s also a deficit of… trust. Getting that trust surplus back is what Mr. Obama came to Washington, apparently, to do.

That’s what I came to Washington to do. That’s why -– for the first time in history –- my administration posts on our White House visitors online. That’s why we’ve excluded lobbyists from policymaking jobs, or seats on federal boards and commissions.

But we can’t stop there. It’s time to require lobbyists to disclose each contact they make on behalf of a client with my administration or with Congress. It’s time to put strict limits on the contributions that lobbyists give to candidates for federal office.

Actually, that bolded statement turned out not to be true. When you said “we have excluded lobbyists”, you might have added, “except for the ones I personally approve of.” You know you’ve given waivers to several former lobbyists to work for your administration. Why lie about it? Oh yeah, you’re doing the populist thing. But it kind of detracts from the whole “honesty” message if you have to lie while you’re making it.

So then while he’s on a roll, Mr. Obama attacks the Supreme Court bribery decision, even though the idea that “campaign donations are free speech” was a major reason why he got elected.

With all due deference to separation of powers, last week the Supreme Court reversed a century of law that I believe will open the floodgates for special interests –- including foreign corporations –- to spend without limit in our elections. (Applause.) I don’t think American elections should be bankrolled by America’s most powerful interests, or worse, by foreign entities. (Applause.) They should be decided by the American people.

Is this some kind of joke? You raised $680,000,000 in the most expensive presidential campaign ever. You took money from every major financial institution, including some of the biggest beneficiaries of the Geithner-Bernanke giveaway. I’m really at a loss for words here.

Finally we come to the part about terrorism. I think he’s almost done.

Since the day I took office, we’ve renewed our focus on the terrorists who threaten our nation. We’ve made substantial investments in our homeland security and disrupted plots that threatened to take American lives. We are filling unacceptable gaps revealed by the failed Christmas attack, with better airline security and swifter action on our intelligence. We’ve prohibited torture and strengthened partnerships from the Pacific to South Asia to the Arabian Peninsula. And in the last year, hundreds of al Qaeda’s fighters and affiliates, including many senior leaders, have been captured or killed — far more than in 2008.

No you haven’t. Well, maybe you have, but – wink! – we’ll never know, right? The “black site” at Bagram air base is expanding; Guantanamo hasn’t closed; you believe in extra-legal kidnapping and assassinations (even of American citizens!) And given that you refuse to prosecute Bush-era torturers, even though their actions constitute high crime under the Geneva Conventions, the Nuremberg Code, and our own World War II legal precedent, it’s hard to believe you’re really against torture. Oh, and by the way, I know of a massive plot to take American lives. In fact, it’s killed more than 5,000 Americans already, almost twice as many as 9/11 did. Do you know what it is?

Aaaaand that about does it. A few more references to the “heroic” American response to Haiti (our decidedly ‘un-heroic’ IMF loansharking, of course, went unmentioned), a throwaway reference to some random lady who says “we are tough, we are American”, one last “God Bless America!”, and we’re clear! Another logically inconsistent, factually dubious, rabble-rousing excuse of abuse that managed to tell us nothing. Congratulations, Mr. Obama.

Racist par excellence - Strom Thurmond

Ryan Grim makes sense in The Huffington Post:

When it comes to progressive priorities in the Senate, there’s one standard: 60 votes are needed. But for Ben Bernanke, there’s a second standard: 50 will be just fine, thank you.

Democratic leaders in the Senate are asking colleagues who are reluctant to support Bernanke’s nomination for a second term as Federal Reserve chairman to nevertheless vote with them to end a filibuster and allow a vote on the actual nomination. The reluctant members would then be free to vote no to express their displeasure. Several Democrats have committed to just that and others are considering it.

The public health insurance option was stripped from health care reform because it didn’t have 60 votes. An expansion of Medicare took its place but it, too, was dropped for having fewer than 60. Both proposals had at least 50 votes. Dawn Johnsen, a nominee to head the Office of Legal Counsel, has the backing of progressive organizations, but a 60-vote threshold has held her up for a year.

This confirms what many “progressives” have feared for many years – that contrary to its stated aims, the Senate routinely interprets its rules in favor of the ruling class, and against the citizenry at large. It’s not limited only to health care – any bill which might, at one point, be said to cut into “industry profits” to the benefit of the body politic needs 60 votes to pass. Bills which clearly favor the military-industrial complex (Military commissions act, PATRIOT act, war spending bills, amnesty to telecom companies, tax cuts to the top 1%, etc.) need only 50. Given Mr. Bernanke’s recent term as Fed Chief, I think it’s pretty clear under which category he falls.

This, in turn, has to do with the byzantine filbuster and cloture rules under which the senate insists on operating. They basically get to choose in advance which bills need 60 votes and which can get by with just 50. Then, when the public complains, they can just say: “well, what can I do? Those are the rules!” Is there any wonder that we wasted a full year on health-care reform only to have it blocked by one recalcitrant senator? Is anyone surprised that Mr. Obama’s gargantuan $680,000,000,000 defense budget passed without a murmur?

There is a sickness plaguing our senate, but few seem willing to recognize it. It’s a more complex problem than many would think at first glance. For though I admit the filibuster has some definite uses (remember the Harriet Miers Supreme Court nomination?), it’s clear this procedure has been abused to the point of absurdity. Further, no one actually has to filibuster anymore; they just have to threaten to do so. Once you invoke the threat, senators have no choice but to scramble to find 60 votes.

Before, during the glory days, (see: Strom Thurmond), one actually had to stand up and talk for days on end: no breaks, no food, no sleep. This, I think, did more than its task in regulating use of the filibuster. Back then it was used for emergencies only – or at least bills that you strongly opposed. It takes a lot to convince someone to stand at the head of the senate and read The Lord of the Rings (or whatever) out loud for days (or even weeks) on end.

Nowadays that requirement has been dropped – all a senator has to do now is threaten to filibuster, and everyone will act as though he already had. And the threat is not so much to waste everyone’s floor time. The threat is to waste their campaign time. For, during a filibuster, the non-filibuster party (here, the “Democrats”) have to all be present. The party filibustering (“Republicans”) are free to do as they please – usually criss-crossing the country in their perpetual quest for campaign donations. So it’s directly in the interests of the Democrats to avoid an actual filibuster at all costs. That’s why they take every threat as the real thing and try to scrounge the 60 votes before it happens.

It’s clear the senate rules have warped far beyond what they were originally intended to do, but I’m not sure how to fix this. Perhaps the Supreme Court might have something to say on this matter?

Bloomberg has a fantastic timeline of the fortunes and despairs our favorite International Group has suffered and celebrated over the past two years. This will be very useful for anyone still confused about how AIG ended up with trillions of taxpayer dollars (read: everyone)

The Economist has a pretty good rundown of Mr. Obama’s proposed financial “regulations”. You can tell they really want to be in favor of this, but even The Economist realizes that short of breaking up the big banks once and for all, any “regulation” is bound to fall short.

This is one of my favorite lines in the article:

Though not a full return to Glass-Steagall, the law that separated commercial banking and investment banking in the wake of the Great Depression (and was repealed in 1999), [the plan] is at least a return to its “spirit”, as one official put it.

Ha! Its spirit! Well, that oughta teach those bad ol’ banks a lesson.

But at least The Economist is honest enough to call a spade a spade:

Moreover, the plan is unlikely to help much in solving the too-big-to-fail problem. Even shorn of prop-trading, the biggest firms will still be huge (though also less prone to the conflicts of interest that come with the ability to trade against clients). As for the new limits on non-deposit funding, officials admit that these are designed to prevent further growth rather than to force firms to shrink.

They may, in any case, be pointed at the wrong target. Curbing the use of deposits in “casino” banking is an understandable impulse, but some of the worst blow-ups of the crisis involved firms that were not deposit-takers, such as American International Group and Lehman Brothers. And much of the losses stemmed not from trading but from straightforward bad lending (think of Washington Mutual, Wachovia and HBOS).

So how is Wall Street reacting? The Journal and The Times each emphasize the stock-market response (with colorful verbs such as “plunges” and “sinks”), but Kevin Drum over at Mother Jones got an e-mail which I think illustrates Wall Street’s mood a bit better:

Nobody I’ve talked to on Wall Street seems to think the proposed reforms (although details remain vague) are anything more than PR, aimed in the wrong direction, don’t do anything to make risk-taking more expensive, and are mere structural reforms that will be annoying to get around, but will be gotten around.

We’ll see what comes out in the next few days. Maybe there’s more to it than telling a bank you can’t invest in PE funds. We can hope anyway.

But if the intent was to “go after the banks” and get the HuffPo crowd revved up, it seems to be working. Hey, maybe we can throw in Geithner or Bernanke’s scalp and “hope” will re-spring eternal.

Yeah, that seems closer to the mark.

Bloomberg has a fantastic front-page report on Treasury Secretary Geithner’s latest abuses. I mentioned previously that Geithner was instrumental in AIG receiving 100 cents on the dollar in their bailout. Essentially, the Federal Reserve agreed to print the full value of AIG’s misbegotten “derivatives” and hand it to them, no questions asked. AIG initially indicated it was willing to “get a haircut” (that is, receive 95 or even 90 cents for every dollar they lost gambling), but quickly backpedaled when it became clear the Fed was going to bail them out 100%.

Now Bloomberg reports that in addition to giving AIG an essentially blank cheque, Geithner instructed AIG to deceive the public on who their “counter-parties” were, on who would benefit from the AIG bailout. Much as the Banking Trusts of the 1920s, our mega-conglomerates today are heavily invested in one another – a bailout to one goes to pay back its creditors elsewhere in the banking system. This proved invaluable in convincing the public to bail AIG out. As Machiavelli wrote, if one must rule by robbery, it is best to conduct a big crime all at once, rather than small ones continuously. By giving a massive ($200 billion +) bailout to AIG, the government could thereby distribute their gift to other banks (the “counter-parties”) without the attention of the public, whose ire would be focused solely on AIG.

Later it turned out that Goldman Sachs, the firm which regularly gets to choose the Treasury Secretary (Geither was their first choice, and his predecessor, Hank Paulson, worked at Goldman for 35 years), was one of the AIG counterparties.

One of the most salient passages in Hugh Son’s excellent article, way up high in the 3rd paragraph:

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.”

So it seems obvious that Geithner did not want the public to know the extent of Goldman Sach’s involvement with this bogus “derivative” scheme, likely so as not to tarnish Goldman’s image of having never received a bailout.

But whatever the reason, this latest report adds to the already exhaustive list of opacity, malfeasance, and outright cronyism that has plagued this crisis.  We cannot approach any semblance of fair economic policy (let alone fantasies of a “free market”), if one corporation regularly gets to appoint Treasury officials and make policy.

The Financial Press is busy crowing over the loss estimates for the Paulson Bailout, claiming that losses have been “cut” by $200 Billion dollars. Of course, this still leaves $500 Billion unaccounted for, but standards for good news have fallen to the extent that a $500 billion loss is considered a ray of hope.

Unfortunately, we will be spared even that brief ray. Research from ProPublica conclusively debunks the claim that TARP losses have been mitigated, if only for the fact that the program has not yet finished.

As they say:

The latest estimate accounts for only the first year of spending, and the TARP’s spending isn’t done. Treasury says it expects the ultimate cost to be higher. Treasury Secretary Tim Geithner extended [8] the TARP thru Oct. 3, 2010, the TARP’s second birthday, earlier this week. He said, though, that Treasury didn’t expect to deploy more than $550 billion of the $700 billion available. As of today, Treasury has committed a total of about $407.3 billion [2] (that’s excluding companies that have refunded their bailout money [6]).

The TARP still has a little less than half its funds to distribute; meanwhile bank failures haven’t even begun to slow (three more failed this Friday, bringing the total to 167 this year), and unemployment still hovers around 17-20 per cent. It seems a bit premature to be declaring victory for the TARP.

Yet more evidence that our friends across the Atlantic have a firmer grasp on democracy than we do: Britain is set to levy a major one-time tax on those scurrilous “bonuses” the banks are handing out with taxpayer money.

The UK government will hit the bankers with a 50% tax on any bonuses greater than $40,000, this year only. In doing so, they will make up a good portion of their budget shortfalls and send a clear message to the financial industry that the taxpayer bailouts are not a gift to the few.

Can such a thing happen here? In the words of the Brookings Institution: not likely.

“I think it is very unlikely that you would see this kind of tax on bonuses here in the U.S.,” Douglas J. Elliott at the Brookings Institution in Washington said. But, he added, “There are going to be big bonuses this season. There will be high levels of public anger. Therefore there will be some bills introduced. I just don’t think they are going to make it through.”

Why? Because unlike in Britain, our entire legislative process has been bought by the major financial institutions, part and parcel.

As Finance Minister Alistair Darling said:

“If they insist on paying substantial rewards, I am determined to claw money back for the taxpayer.”

Can one even imagine such words coming from our own Bailout Chiefs?

Zero Hedge gives us yet more evidence that the Dow is overvalued: industry insiders are selling stock 82 times faster than they’re buying it.

In the most recent data set, $11.6 million in stock was purchased by insiders, while a whopping $957 million was sold. And somehow pundits are still spinning this mass orchestrated sell into the bid by those in the know as a bull market.

For significant holders of stock, now might be the time to unload.

The Daily Beast has an excellent report on our banking sector’s new financial practices, which – surprise! – are inscrutable to the inquiring journalist. That the late financial crisis bears remarkable resemblance to the Enron scandal 9 years ago has apparently occurred to few, though it should be obvious. Nomi Prins traces the same shadow accounting in three major banks that brought Enron down.

As she says:

While Washington ponders what to do, or not do, about reforming Wall Street, the nation’s biggest banks, plumped up on government capital and risk-infused trading profits, have been moving stuff around their balance sheets like a multi-billion dollar musical chairs game.I was trying to answer the simple question that you’d think regulators should want to know: how much of each bank’s revenue is derived from trading (taking risk) vs. other businesses? And how can you compare it across the industry—so you can contain all that systemic risk? Only, there’s no uniformity across books. And, given the complexity of these mega-merged firms, those questions aren’t easy to answer.

While we continue to argue over whether or not our banks deserve regulation, their accounting practices are transforming beyond all recognition. Whoever we hire to audit our banks – if, indeed, we ever do so – will face an impenetrable morass.

The Times ran a fantastic article last week which I think deserves a careful look, as it presents in uncharacteristically sharp terms the economic situation before us.

They begin with some fun facts:

With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

$700 Billion, as many must recall, was the magical “really big number” Bush and Paulson sold us last September, promising that we likely shouldn’t spend it all, and will probably “see a return on our investment”. I remember the awe with which we once held the TARP program: “$700 Billion, have they lost their minds?” None of us (certainly not I) could have fathomed such a large sum being spent at one time. It is a testament, then, to our infinite ability to adapt that $700 Billion no longer seems so very great, and we can swallow easily the prospect of such an annual payment.

The Times is somewhat disingenuous in claiming $500 billion a year to be “greater than the combined federal budgets for… Iraq and Afghanistan”. As The Times are surely aware, President Obama recently signed a $680 Billion war bill in October, with (according to The Times), “$550 billion for the Pentagon’s base budget in fiscal 2010 and $130 billion more for the wars in Iraq and Afghanistan.”  But I digress.

Much of this new debt, as The Times is kind enough to report, has to do with the massive dumping of cash onto the open market via the Federal Reserve. Euphemistically, the article states:

“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”

“Teaser rates” of course, means lending at 0% interest, essentially lending for free. This is the policy our Fed has chosen over the past year. It, combined with the trillions of untraceable dollars injected into our five major banks, have expanded the Treasury beyond anything previously imaginable. As the article claims:

On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages.

What this all means, what the Times doesn’t see fit to mention, is that the US government is bankrupt. That’s it. Our liabilities overshadow our assets, our debts are greater than our ability to pay them; we are underwater, over our heads, sunk.

And we aren’t the only ones:

The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates.

It looks like the US and Europe will be coming to terms with some hard realizations next decade.

I know I’m somewhat late to this party, but I wanted to point out to all who are still unaware that the ‘too big to fail’ banks which caused our late crisis are even bigger.

JP Morgan, AIG, Citigroup, Goldman, and Bank of America were the winners of Geithner-Paulson’s free money giveaway (with Lehman a bad loser), and together they have swallowed the hundreds of small and medium banks that have failed since. They now present an even bigger and more systemic risk, should they choose to gamble away their money once again.

Despite repeated calls from almost every respected economist (notably Joseph Stiglitz) that these banks are a menace, Lords Geithner and Bernanke have done nothing to restrict their size – indeed, they have made them impossibly more dangerous and lucrative.

Furthermore, none of the incentives which led to such reckless gambling (ludicrous bonus packages, easy credit, low intrest, short-term rewards) have been addressed, and instead have been reinforced.

The next bailout will have to be 700 trillion instead of a mere 700 billion.

I missed the last three failed bank Fridays, so here are all seventeen that failed in the past three weeks in a row. As always, from the FDIC:

The policy blogs are abuzz with the recent news that the Federal Reserve System might finally undergo an audit. The bill, sponsored by Ron Paul and endorsed by nearly everyone else, passed with a lopsided 43-26 victory in the House and would be the first comprehensive inquiry into what the Fed does with the trillions of dollars it commands. Glenn Greenwald has the best dissection of what went down.

Some highlights:

Our leading media outlets are capable of understanding political debates only by stuffing them into melodramatic, trite and often distracting ”right v. left” storylines.  While some debates fit comfortably into that framework, many do not.  Anger over the Wall Street bailouts, the control by the banking industry of Congress, and the impenetrable secrecy with which the Fed conducts itself resonates across the political spectrum, as the truly bipartisan and trans-ideological vote yesterday reflects.  Populist anger over elite-favoring economic policies has long been brewing on both the Right and Left (and in between), but neither political party can capitalize on it because they’re both dependent upon and subservient to the same elite interests which benefit from those policies.

Beyond the specifics, a genuine audit of the Fed would be a major blow to the way Washington typically works.  The Fed is one of those permanent power centers in this country that exert great power with very little accountability and almost no transparency (like much of the intelligence and defense community).  The power they exert has exploded within the last year as a result of the financial crisis, yet they continue to operate in a completely opaque manner and with virtually no limits.  Its officials have been trained to view their unfettered power as an innate entitlement, and they express contempt for any efforts to limit or even monitor what they do.

The Times reports on a recently released audit which concludes, beyond the shadow of a doubt, that Timothy Geithner (now Treasury Secretary, then President of the New York Fed) voluntarily gave up vast negotiating powers when choosing to shower AIG with billions upon billions of dollars.

The article is written in standard Times-ese, which is to say that it seeks to relate truly scandalous information in such a way as to cause as little uproar as possible, but although it must be translated into standard English, some truly damning testimony emerges:

Just two days before the New York Fed paid A.I.G.’s partners 100 cents on the dollar to tear up their contracts with the insurance giant, one bank volunteered to take a modest haircut — but it never got the chance.

UBS, of Switzerland, alone offered to give a break to the New York Fed in the negotiations last November over how to keep A.I.G. from toppling and taking other banks down with it. It would have accepted 98 cents on the dollar.

The Fed “refused to use its considerable leverage,” Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, wrote in a report to be officially released on Tuesday, examining the much-criticized decision to make A.I.G.’s trading partners whole when people and businesses were taking painful losses in the financial markets.

So this means: The New York Fed decided to print 100% of the value of AIG’s investors’ bad loans in order to get them to divest from AIG, and (hopefully) save the money-laundering giant. Realize, now, that the Fed was under no obligation whatsoever to guarantee these loans with taxpayer dollars, and certainly not guarantee them at full value. Given that these CDS loans were later revealed to be totally fraudulent, this decision makes even less sense.

If I convinced you to give me real dollars for Monopoly Money, and then you complained to the government that the Monopoly Money you received was actually worthless, would you expect them to just print 100% of the value and give it to you, no questions asked? Or would you expect them to give you nothing and tell you, in effect, to be smarter next time?

What’s truly astounding about this episode is that some of the banks offered to take less than 100% of the value of their worthless investments, but Geithner refused! He said to them, essentially, that “oh well, it doesn’t matter – it’s taxpayer dollars anyway! Go ahead, take the full value!”

This is the man who is now our Treasury Secretary.

Motley Fool gives us an excellent rundown of the arguments in favor of Dollar hyperinflation next decade.

Give it a read, and get ready to start papering your walls with Ben Franklin’s handsome likeness!

Three this week, including one from my home state. Who says the recession is over?

Via the FDIC:

From the FDIC:

Dissident economist Joseph Stiglitz writes a fantastic op-ed in a recent issue of The Guardian about the number-twisting that goes into our GDP figures. The article is well worth reading, as it challenges many of our basic assumptions regarding such concepts as “economic health”, “vitality”, and “well-being”.

Stiglitz argues persuasively that “GDP maximization” is often at odds with what most would consider a basic standard of living. Clean air laws, water purity acts,  food safety guidelines and a host of other legislation technically reduce our GDP, but they also make our lives incomparably better. By taking GDP as a paramount indicator of economic health, Stiglitz contends, many economists neglect their citizens’ standard of living.

Stiglitz also mentions a lack of any measure of income inequality in GDP statistics – an important point, as our income disparity is now the greatest it has been since the gilded gilt of the 1920s.

And we cannot forget the massive role of government in our recent GDP figures. The value of government spending is inherently unmeasurable – we must simply take their word that the money they spent was on items of value (and not, say, financial executive compensation). As Stiglitz mentions:

In the last 60 years, the share of government output in GDP has increased from 21.4% to 38.6% in the US, from 27.6% to 52.7% in France, from 34.2% to 47.6% in the UK, and from 30.4% to 44.0% in Germany. So what was a relatively minor problem has now become a major one.

Stiglitz’s weakness, however, stems from his inability or unwillingness to mention some of the more unsavory methods of boosting reported GDP. The faults he recognizes, while nefarious, are generally well known. But our government engages in many, many other artifices in order to make our GDP numbers look better.  Here I refer specifically to the practice of “product substitution” and “income imputation”.

Harper’s ran a superior article about this phenomena in its May 2008 issue. In short, the doctrine of “product substitution” states that if flank steak becomes too expensive, consumers are expected to move down to ground beef – the same product is being consumed, but in less expensive a form. In this instance, for GDP calculators, the numbers for ground beef sales are adjusted upward to correspond to what flank steak would have cost (since the two products are made of the same cow). The GDP remains the same, but standard of living obviously goes down.

Also mentioned by Harper’s, but curiously neglected by Stiglitz, is the idea of “income imputation”. Put shortly, the Bureau of Economic Analysis, unbeknown to its subjects, will impute (or add) to household incomes at its discretion. From Harper’s:

The Bureau of Economic Analysis “imputes” to nationwide personal income data (known as phantom income boosters; for example, the imputed income from living in one’s own home, or the benefit one receives from a free checking account, or the value of employer-paid health- and life-insurance premiums). During 2007, believe it or not, imputed income accounted for some 15 percent of GDP.

I would strongly suggest reading the above Harper’s article in full – it gives a deep and terrifying account of the extent to which our government engages in daily statistical fraud. Joseph Stiglitz, valiant though his attempt may have been, unfortunately cannot give a full picture of our government’s manipulation.

From the FDIC, this week’s bank failures: