Posts Tagged ‘bank’
Fraud Didn’t End With Goldman Sachs
Hats off to ProPublica for their phenomenal follow-ups to the SEC case against Goldman Sachs, and for revealing that what might have been a genuine move against corruption now merely seems like a politically motivated slap on the wrist, a show-trial, essentially, where big bad Goldman Sachs gets forced to pay a pittance of a fine and the rest of their compatriots who indulged in the exact same practices go off scot-free. Let’s not forget that they paid only 1% of their 2009 profits in taxes, so whatever restitution the SEC squeezes out of them won’t begin to cover their debt to the US Government.
For those of you who haven’t been following the byzantine hearings regarding the Goldman case, with their alphabet soup of acronyms and stern avocations from our media that these are “complex financial instruments” we’re dealing with – well, who can blame you? But the gist of the case is relatively easy to follow, and while Goldman may have been a particularly egregious offender, almost every investment bank bigger than a mom-and-pop outfit traded in Collateralized Debt Obligations (CDOs), the “complex instruments” that lie at the center of this case. Earlier this month ProPublica ran an extensive look at Magnetar, a hedge fund that traded exclusively in CDOs, and just a few days ago it revealed that Merril Lynch engaged in identical practices to the ones that got Goldman Sachs sued by the Securities and Exchange Commission.
CDOs are basically a bet that a given asset will perform well or perform poorly. In the Goldman Sachs case, Goldman put together securities (assets) that it knew would fail (the SEC hopes to show that a Goldman trader specifically picked the components of the securities for their especial toxicity), sold those securities to gullible investors, then secretly took out a collateralized debt obligation against that same security, betting, in essence, that its value would go to zero, which of course they knew would happen because they picked it specifically to do so. When, sure enough, the security did become worthless, Goldman hit paydirt.
This is called fraud, and it’s a pretty grievous sin in the world of finance (at least it was, once upon a time). So on one hand, it’s absolutely just for Goldman Sachs to come under the SEC’s gun, get its reputation tarnished a bit, and, with luck, get a few of its executives fired, where they can live the rest of their days in their Park Avenue penthouses, counting their ill-gotten gains. But on the other hand, what is the use of this symbolic prosecution if it doesn’t engender a shift in practices from the financial community?
The case of John Paulson and Goldman Sachs identified in the SEC indictment was neither the biggest nor the most blatant case of securities fraud during the run-up to the crisis. For the SEC to suddenly regain its regulatory muscle, and for them to focus on this one case to the exclusion of all else stinks of politics. President Obama’s approval ratings are dropping fast, and prior to this there had been no prosecutions of financial fraud at all. I could easily see President Obama instructing the SEC to move forward on the Goldman case so he could have something to show by November, especially since Goldman is the most visible and most reviled of all the Wall Street slimeball firms.
Finally, this case brings to light just how important the financial reform being discussed in the Senate is to prevent future such fraud. Currently most of the discussion seems to center around the politically popular “consumer protection”, but while overdraft fees and adjustable rate mortgages were pernicious side effects of the crisis, the real engine behind the financial meltdown was the widespread sale of over-the-counter (unregulated) derivatives like the CDOs mentioned in this case.
“Financial Reform” means nothing if not the outright ban of derivatives trading – or failing that, the erection of a structured derivatives exchange where fraudulent trades like the Goldman Sachs deal would be visible to the public and to investors. Without that, we’re literally back where we started.
Fraud and Washington Mutual
The recent WaMU collapse hearings have brought out some juicy revelations, all of which detail practices widespread among all mortgage lenders. I highly recommend Zach Carter’s Huffington Post piece for its explanatory power:
There are two types of financial outrages: acts that are outrageously illegal, and acts that are, outrageously, legal. Yesterday’s Senate hearing on the rise and fall of Washington Mutual was a rare examination of the former outrage, documenting the pervasive practice of fraud at every level of the now-defunct bank’s business.
All of Washington Mutual’s sketchy practices can be traced back to rampant fraud in its mortgage lending offices. The company repeatedly performed internal audits of its lending practices, and discovered multiple times that enormous proportions of the loans it was issuing were based on fraudulent documents. At some offices, the fraud rate was on new mortgages over 70%, and at yesterday’s hearing, the company’s former Chief Risk Officer James Vanasek described its mortgage fraud as “systemic.”
When most people think of mortgage fraud, they think of a clever borrower conning an unwitting banker into extending him a loan he cannot afford. But this isn’t really how fraud usually works in the mortgage business. According to the FBI, 80% of mortgage fraud is committed by the lender, so it shouldn’t be surprising that WaMu’s internal audits concluded that its widespread fraud was being “willfully” perpetrated by its own employees. The company also engaged in textbook predatory lending across all of its mortgage lending activities–issuing loans based on the value of the property, while ignoring the borrower’s ability to repay the loan.
These findings alone are pretty bad stuff in the world of white-collar crime. For several years, WaMu was engaged in fraudulent lending, WaMu managers knew it was engaged in fraudulent lending, and didn’t stop it. The company was setting up thousands, if not millions of borrowers for foreclosure, while booking illusory short-term profits and paying out giant bonuses for its employees and executives. During the housing boom, WaMu Chairman and CEO Kerry Killinger took home between $11 million and $20 million every single year, much of it “earned” on outright fraud.
New Desperation from the FDIC
(c/0 The Daily Digest)
ZeroHedge has a good find today: The FIDC is getting so desperate that it’s literally begging Americans to open savings accounts. Here’s the press release:
FOR IMMEDIATE RELEASE
February 22, 2010 Media Contact:
Greg Hernandez (202) 898-6984
Cell: (202) 340-4922
Email: ghernandez@fdic.govThe Federal Deposit Insurance Corporation (FDIC) is calling upon consumers across the nation during America Saves Week to consider establishing a basic savings account or boosting existing savings. FDIC Chairman Sheila Bair said, “One fundamental lesson of the financial crisis is that savings can help families withstand sudden changes in their economic well being. Establishing a savings account in a federally insured institution is a great first step to build wealth and begin a savings habit that will last a lifetime.”
The personal savings rate rose to 4.6 percent in 2009 from 2.7 percent in 2008, according to the U.S. Department of Commerce. “I am pleased to see that people are saving more of their hard-earned money and building wealth. Having personal savings for an emergency fund or saving for a future expenditure, such as a college education, can make a big difference in avoiding other costly alternatives. I’ve always been a big advocate of a back-to-basics approach to financial services; it’s my hope that Americans’ increase in savings is the beginning of a long-term trend,” Bair said.
“Money saved by consumers also provides a stable source of funding for investments in the economy that benefit all Americans,” said Bair. “In fact, a country with robust savings generally has more capital to fund investments and support economic growth over the long-term. As demonstrated recently, it is harmful to an economy when consumers spend beyond their means, financed by debt that they cannot afford to repay.”
Man, things are not looking good. And for those who are interested, here are the number of FDIC “problem banks” over time, now in convenient chart format!
That’s a lot of liabilities. Oh yeah, and their reserves just went negative, so they’re basically broke. Hooray!
Unemployment Still Trending Upward
Dean Baker makes a catch that nearly every mainstream outlet declines to report: jobless claims are up more than 31,000 from last week. In other news, the Federal Reserve, whose stated job it is to keep unemployment “low” (usually defined as 4.0%) is failing miserably at its job. What’s worse, it seems to consider employment a secondary concern, particularly if this Times article is any indication.
I hasten to remind my readers that by law, the Fed is required to do all it can to keep unemployment as near to 4% or below. Its unseemly focus on “bank stability” and “inflation” are illegal. Maybe someone should inform Mr. Bernanke.
China Ready to Dump US Securities
(c/o ZeroHedge)
This is serious. The Asia Times reports today that China is ready to start selling off its US Treasury Notes, ostensibly as a “punishment” for the recent US sales of arms to Taiwan. I and others previously warned about what would happen if China decided to let go of its dollar holdings – the gist is that China is the only thing standing between the US and catastrophic inflation. Previously these fears were pooh-poohed by establishment figures with the familiar arguments: “China needs us more than we need them”, “Who will China sell its surpluses to?” I even heard someone say, “Without us, the Chinese will be cavemen”. Well, it looks like China might have found itself a new trading partner, if this Asia Times article is any indication:
Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.
It is not clear whether China’s motive is simple risk aversion in the wake of a sharp widening of corporate and mortgage spreads during the past two weeks, or whether there also is a political dimension. With the expected termination of the Federal Reserve’s special facility to purchase mortgage-backed securities next month, some asset-backed spreads already have blown out, and the Chinese institutions may simply be trying to get out of the way of a widening. There is some speculation that China’s action has to do with the recent deterioration of US-Chinese relations over arm sales to Taiwan and other issues. That would be an unusual action for the Chinese to take–Beijing does not mix investment and strategic policy–and would be hard to substantiate in any event.
Where do you think we’re getting the money to prosecute these $5,000 per second conflicts in the Middle East? Where did the money for our $2,500,000,000,000 (and counting) bank bailouts come from? China. They make our money real. Without their manufacturing powerhouse backing us up, our dollars are worthless. What, you think the world is going to value our “service economy” at $13,000,000,000,000 per annum if that money weren’t backed by Chinese promises? Not likely. And now those promises are now increasingly under threat.
Be afraid.
Stimulus Fraud
Propublica continues its fantastic coverage of the Obama stimulus bill by drawing attention to a true face-palm moment:
The Kentucky transportation department has awarded $24 million in stimulus contracts to companies associated with a road contractor who is accused of bribing the previous state transportation secretary, according to an audit by the federal Department of Transportation [1] (PDF).The DOT’s internal watchdog used the case to highlight the significant delays in the time it takes for the Federal Highway Administration to suspend or bar someone from receiving government contracts. Though the agency is supposed to make such a decision within 45 days, federal highway officials waited 10 months after the indictment to put the men accused of bribery onto the list of banned contractors.
I think this happy little episode displays pretty succinctly the vast and systemic corruption with which the Government has dispensed this stimulus.
The shadowy underworld of government contract awards is mysterious indeed:
In the Kentucky case, at trial this week, prosecutors have alleged that longtime road contractor Leonard Lawson paid state employees for confidential engineering estimates that helped him get a leg up on bidding for contracts.
Paul Krugman, Matt Yglesias, Ezra Klein, and the rest of the “progressive” blogosphere have each chastised Mr. Obama for not providing a “big enough” stimulus, and while there may be theoretical reasons for thinking such, it seems clear that even the biggest “stimulus” will fail to stimulate if it’s handled with fraud and deceit.
Eye on the Stimulus
We’re tracking the stimulus from bill to building, and we’re organizing citizens nationwide to watchdog local stimulus projects. Our team includes editor Tom Detzel, lead reporter Michael Grabell, Jennifer LaFleur, Amanda Michel, Eric Umansky and Christopher Flavelle.
When Do You Ban a Stimulus Contractor?
Kentucky highway contractor Leonard Lawson heads to court where he faces charges related to bid-rigging on road construction projects in Lexington, Ky., on Jan. 11, 2010. (James Crisp/AP Photo)
The Kentucky transportation department has awarded $24 million in stimulus contracts to companies associated with a road contractor who is accused of bribing the previous state transportation secretary, according to an audit by the federal Department of Transportation [1] (PDF).The DOT’s internal watchdog used the case to highlight the significant delays in the time it takes for the Federal Highway Administration to suspend or bar someone from receiving government contracts. Though the agency is supposed to make such a decision within 45 days, federal highway officials waited 10 months after the indictment to put the men accused of bribery onto the list of banned contractors.
The combination of lengthy delays in the contractor suspension process and the rapid disbursement of billions of stimulus dollars “creates a ‘perfect storm’ for contractors intent on defrauding the government,” the inspector general audit said.
But the case also highlights a common tension in the contracting world that is now getting more attention with the nearly $800 billion stimulus package: What level of evidence is enough to justify suspending a company from receiving government contracts?
In the Kentucky case, at trial this week, prosecutors have alleged that longtime road contractor Leonard Lawson paid state employees for confidential engineering estimates that helped him get a leg up on bidding for contracts.
Reinstate Glass-Stegall!
I mentioned this before, but I really want to stress that “financial reform” is completely meaningless without reinstating the Glass-Stegall Act. Enacted in 1933 and foolishly repealed in 1999, Glass-Stegall drew a firm line between commercial and investment banks and prohibited the “securitization” that lay at the heart of this crisis. Previously, “commercial” banks – ones in which you deposit your paycheck and which might later loan you money for a house or car – were completely separate entities from “investment” banks – ones that invest your money in whatever way they see fit. Commercial banks were low risk, low rate-of-return, while investment banks carried a higher risk, but with more earning potential. When current Economic Council Director Larry Summers chose to repeal Glass-Stegall back in 1999, he abolished the distinction between commercial and investment banks, allowing erstwhile “safe” organizations to make wildly irresponsible bets and grow so intertwined that they eventually brought the whole system down. Repealing Glass-Stegall created the “Too Big to Fail” banks.
The famous Elizabeth Warren, Paul Vlocker, and even John McCain (whose chief adviser’s name is on the G-S repeal) have come out in favor of reinstating Glass-Stegall. All the “too big to fail” banks are now even bigger, and this is largely because legislation which was traditionally used to keep them from conglomerating was idiotically repealed. This is the biggest one thing Congress can do right now to prevent the need of a future bailout. It would be so easy – they could do it tomorrow! The legislation is already written; all they have to do is sign it.
Sens. John McCain and Maria Cantwell have done a great service by recently proposing a Glass-Stegall reinstatement in the senate last month, but the bill doesn’t seem to have much support. This is totally baffling to me. The only reason I can think why the Senate wouldn’t do this right now is the massive donations they would have to sacrifice. Predictably, all the financial institutions, from Bank of America to Goldman Sachs, are vehemently against Glass-Stegall, as it would require them to break up, and likely diminish their ludicrous profits. Hence in the Bloomberg article you can hear Senators conceding that the bill “makes a lot of sense”, but “[they] don’t know if it’ll ever happen.” Uh…
The toll-free numbers for the Congressional switchboard are: 1-877-851-6437, 1-800-828-0498, or 1-800-614-2803. I think this is one issue where calling your congressman could conceivably sway them. Congress bows to the financial industry only insofar as its money can help them get elected. Public outcry can influence our legislators on legislation as specific as this. Remember, the TARP bailout originally failed in the House because their switchboards lit up with calls from angry voters.
Finally, a US Bonus Tax
This is good news, even if it does fall short of anything one could describe as “punitive” toward the banks. The plan, I guess, is that Mr. Obama collects $90 billion over the next decade (that’s $9 billion per year) from the 50 banks he deems were “most responsible” for the late crisis.
At one point, Mr. Obama channels Michael Moore:
“We want our money back and we’re going to get it,” Obama said. “If these companies are in good enough shape to afford massive bonuses, they are surely in good enough shape to pay back every cent they received from taxpayer.
Right. And while this $90 billion (over ten years) may go some distance in repaying the $2,000,000,000,000 we printed as a result of this imbroglio, I seriously doubt it’ll cover the tab. Mr. Obama seems to follow the strictest definition of “borrowed” imaginable – he only counts the TARP program (you remember, the first $700,000,000,000 back in November ’08), and not the trillions we’ve simply distributed as behind-the-scenes gifts.
The Washington Post sums it up in a quote:
“The new big-bank tax is just like charging a nickel sin tax on a half-gallon of cheap liquor — it may make moralists feel good, but it doesn’t do much to stop bad behavior,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, which tracks regulatory issues for financial industry clients.
Exactly. I would hasten to compare this half-assed bonus tax to the one recently levied in Britain and France (50% of all bonuses, whether or not your bank received a bailout). These taxes have a punitive element to them that the US counterpart completely lacks. What, are we supposed to feel good because our government finally worked up the nerve to ask for some of the money back? The towering levels of fraud and malfeasance perpetrated by our financial sector deserves, I think, a little more than a light admonishment and the extraction of a promise of repayment.
As always, any talk of “financial regulation” and “congressional oversight” (let alone “repayment”) mean absolutely nothing without mentioning the Glass-Stegall Act. You know, that rule they made after the Great Depression that said “commercial” and “investment” banks must be separate entities? The one whose repeal in 1999 allowed our banks to assume epic risk, gamble away people’s 401(k)s, and eventually bring the whole system down? Yeah, that one. If we don’t correct the shoddy legislation that allowed this crisis to happen in the first place, we’re just setting ourselves up for another one however many years down the road.
Bonus Tax
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?
The Other Smartest Guys
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.
Failed Bank Fridays!
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:
| Pacific Coast National Bank | San Clemente | CA | 57914 | November 13, 2009 | November 18, 2009 |
| Orion Bank | Naples | FL | 22427 | November 13, 2009 | November 17, 2009 |
| Century Bank, F.S.B. | Sarasota | FL | 32267 | November 13, 2009 | November 18, 2009 |
| United Commercial Bank | San Francisco | CA | 32469 | November 6, 2009 | November 9, 2009 |
| Gateway Bank of St. Louis | St. Louis | MO | 19450 | November 6, 2009 | November 9, 2009 |
| Prosperan Bank | Oakdale | MN | 35074 | November 6, 2009 | November 9, 2009 |
| Home Federal Savings Bank | Detroit | MI | 30329 | November 6, 2009 | November 9, 2009 |
| United Security Bank | Sparta | GA | 22286 | November 6, 2009 | November 9, 2009 |
| North Houston Bank | Houston | TX | 18776 | October 30, 2009 | November 3, 2009 |
| Madisonville State Bank | Madisonville | TX | 33782 | October 30, 2009 | November 3, 2009 |
| Citizens National Bank | Teague | TX | 25222 | October 30, 2009 | November 3, 2009 |
| Park National Bank | Chicago | IL | 11677 | October 30, 2009 | November 3, 2009 |
| Pacific National Bank | San Francisco | CA | 30006 | October 30, 2009 | November 3, 2009 |
| California National Bank | Los Angeles | CA | 34659 | October 30, 2009 | November 3, 2009 |
| San Diego National Bank | San Diego | CA | 23594 | October 30, 2009 | November 3, 2009 |
| Community Bank of Lemont | Lemont | IL | 35291 | October 30, 2009 | November 3, 2009 |
| Bank USA, N.A. | Phoenix | AZ | 32218 | October 30, 2009 |
Geithner and AIG, Sitting in a Tree
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.
The 9/12 Protests As They Should Have Been
The Huffington Post has got the scoop on the recent protests that erupted outside the American Banker’s Association in Chicago yesterday. Unlike the “9/12 Tea Party” protests last month, however, these outraged citizens saw very little mainstream coverage. CNN merely reprinted a Reuters dispatch which quoted none of the protesters but plenty of the meeting’s attendees, all of whom professed their unequivocal innocence. Fox News, unsurprisingly, had very little to say on the matter. Even the New York Times could not be bothered to toss the story a brief. In all, the mainstream reaction to these demonstrations stands in pitiful contrast to the 24-hour live feed which blared into millions of homes on September 12th.
When one gets a sense of who these protesters are and what drove them into the street, the reason for a lack of discussion becomes clear. This demonstration did not occur within controlled paramters; its organizer, National People’s Action, has made no direct campaign contributions, and their stated aims, in contrast to the Fox News 9/12 Movement, are antithetical to the aims of our corporate industry.
Instead of agitating against a health-care public option (opposition to which has benefited our insurance industry enormously), this group seeks strong regulation of the financial instruments which threw them into poverty – CDOs, CDSs, etc. The current proposal to achieve this end creates a “Consumer Finance Protection Agency” (or CPFA) in a highly-contentious bill which is now on the senate floor and is being vigorously opposed by the financial establishment.
As Esther Kaplan reports in The Nation:
“‘We had this image of big bankers sipping martinis and saying, ‘Did we really get away with this?'” said lead organizer George Goehl, director of National People’s Action. “Then two months ago we found out the American Bankers Association was having its annual meeting here in Chicago.” The ABA, not so incidentally, has fiercely fought against new regulations on the banking industry, and is lobbying hard now against the CFPA.
This is something to watch for, much more so than the protests last month, as yesterday’s demonstration reflects, so far as one can tell, a genuine outrage over the status quo. Yesterday’s protest was small (estimates of just under 1,000 people), but one would like to think a small demonstration against a real grievance would carry more weight than a large, manufactured demonstration over a non-existent one. It will be interesting to see whether similar demonstrations crop up, or, starved for lack of media attention, this CPFA movement dies down. We know which option our bankers prefer!
This Week in Failed Banks
Show me the money!
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Sour News for Deficit-Watchers
Time Magazine reports that Obama is planning another stimulus package in what they refer to as a “stealth stimulus” – it bears all the characteristics of a new round of spending without the now-discredited moniker.
In fact, Obama officials have been adamant that what they are proposing is not a new stimulus. They prefer such woolly phrases as “tax credit” and “other measures to improve the economy”. But by whatever name you choose to call it, the measures being proposed could eventually add up to more than $100 billion, according to Time.
Meanwhile, if the old stimulus has had any effect, it remains somewhat difficult to tell. The administration touts various figures of “saved jobs” (according to recovery.gov, my home state of Michigan saw 397 jobs created), but they present small relief when compared to the still-horrifying monthly job losses. It is also clear that the original stimulus is not being spent quickly enough. According to the government’s own statistics, the states have received only 11% of the original stimulus, even though 73% of the amount specified by the bill has officially been awarded.
This indicates a bureaucratic bottleneck that no amount of extra “tax credits” can relieve. Authorizing a new stimulus when the old one is still 89% unspent will only add to the deficit while having no other discernible effect. Most indicators would suggest that the stimulus money is now being spent at its fastest possible rate – our bureaucracy literally cannot allow for the funds to be distributed any faster. In light of this, a second stimulus would seem positively irresponsible. No wonder the Obama Administration doesn’t want to call it that.
An addendum: Christopher Flavelle over at ProPublica did some math and calculated that jobs created by the current stimulus bill cost $533,000 apiece. Even more evidence that a stimulus bill might not be the most efficient way to mitigate job losses.
This Week in Failed Banks
Three this week, including one from my home state. Who says the recession is over?
Via the FDIC:
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Goldman and The Government: Strange Bedfellows
The Huffington Post gives us a nice preview of an insider report in the upcoming issue of Vanity Fair, detailing the secret meetings between Goldman Sachs and the US Treasury at the height of last year’s stock market crash.
Here is a nice little Q&A with the author, Andy Sorkin, to get you warmed up. Look out for this article.
More on the FDIC
As I mentioned in an earlier post the FDIC has seen its reserves dwindle under the weight of this year’s bank failures. Well, the day of reckoning has come, according to The New York Times, who reports that the Federal Deposit Insurance Corporation will fall into deficit this week.
The speed with which the FDIC has eaten through its $50 Billion slush fund should alarm, but after three successive Trillion-dollar bailouts, mere billions fail to awe. Rank-and-file depositors probably have no reason to worry, however – the missing cash will most likely be “borrowed” (at no interest) from the Treasury or from our bailout-bloated mega-banks, in a maneuver only one step removed from simply printing more cash.
Our federal balance sheet has already loosed from any anchor to reality it may have once had, so, the argument goes, what’s a few billion more? But take this as an indication that the glut of bank failures, far from slowing amid last year’s bailouts, has continued at a steady clip.
This Week in Failed Banks
From the FDIC:
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This Week in Failed Banks
From the FDIC, this week’s bank failures:
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Our poor, poor FDIC!
ProPublica has an excellent graph showing the FDIC’s wiped-out reserves, which I alluded to in a previous post. Here is the graph, re-posted with due respect:
Disappearing FDIC Reserves
Can anyone say, “Bailout”?
About the Banks…
A dark patch in our media’s otherwise cheery coverage of the economy. After three weeks of exultation over Bernake’s re-appointment (even from administration critic Paul Krugman!), endless blather over so-called “green shoots”, and an outright declaration from the Dallas Fed Chief that “The Recession is Over”, our Federal Deposit Insurance Corporation announced it is down to its last $10 Billion. 20% of their funds were reportedly wiped out this quarter alone, bringing them back to early ’90s levels.
The wave of small and mid-level bank failures has not yet abated, though it receives far less coverage than it once did. Here is the FDIC list of failed banks in its stewardship. You will notice a majority failed this year.
If this trend does not reverse quickly, the FDIC will the likely require a government cash infusion. Our wheel of bailouts has come full circle.
In particular, this development throws new light on President Obama’s re-appointment of Ben Bernanke for Fed Chief. The administration would have us believe Bernanke acted “boldly” to “rescue the economy from another Great Depression”, but actual signs of recovery are hard to see. Unemployment still skyrockets (though not with such horrifying swiftness as it did earlier this year), and the banking crisis has clearly not been solved.
Bernanke was also in a leadership position all throughout the run-up to the crisis. He did nothing to stop it, and even tried to convince us not to worry. He repeatedly claimed the subprime issue would not threaten housing in general – and certainly not the economy as a whole. How quaint such comments seem after all this devastation!
Bernanke may have a very dubious record of public governance, but he has an excellent record of corporate “partnership”. The net effect of his actions since the crisis has been to secure the fortunes of a very few at the expense of our public coffers. It is then not surprising that the corporate world viewed his nomination with great jubilation. Google the words “Bernanke” and “Reassure” together to get a picture of how true this is.
And if there is one thing we can say of President Obama, it is that he has the financial sector’s interests in mind.
The Reasoned Review 