Naming Names: A Baker's Dozen of Financial Rogues

Late last week, in the penultimate edition of Bill Moyer's Journal (which ends forever this week) the best journalist in television interviewed Prof. William K. Black. Refreshingly, Prof. Black names names while discussing who should bear responsibility for bringing the world to the edge of financial collapse during the waning days of the Bush Administration.

It's a crowded, bi-partisan recitation of rogues, sociopaths, and bureaucratic nitwits. The list includes --

1. Federal regulators who did everything they could to subvert prudential financial regulations;
   
2. Alan Greenspan and other directors of the Federal Reserve;
   
3. Mortgage loan brokers who deliberately wrote and then palmed off on others "liar's loans;"
4. Corporate banking executives who fired whistle-blowers and promoted cheats and con-men;
   
5. Accountants who deliberately failed to call out liar's loans for fear of losing customers;
6. "Pathogenic" employee pay policies that rewarded fraud while punishing honesty;
   
7. Timothy Geithner, former head of the influential New York FED during the Bush Administration and now Obama's U.S. Treasury Secretary;
   
8. Bush appointees (former) SEC chairman Cris Cox and FED chairman Ben Bernanke;
9. The giant blood-sucking "vampire squid" known as Goldman Sachs;
   
10. "Top" Goldman Sachs executives from CEO Lloyd Blankfein on down the corporate chain of command;
    
11. The entire "Bush wrecking crew" of anti-regulation regulators who remain to this day embedded in the federal bureaucracy;
12. Goldman Sachs alum Robert Rubin's many "protégés" whom President Obama has named to virtually every choke-point in the financial regulatory system; and
    
13. As a bonus, the extremist ideologues in Academia and on the bench who teach and write that Wall Street doesn't need and shouldn't enforce anti-fraud laws because the system is "self-cleansing." Really. They teach that to young business students.

Undoubtedly, this is only a partial list. Prof. Black didn't even mention former Texas senator Phil (Mr. Enron") Gramm, or Wall Street's bond-rating agencies, or all of the Senators and Congressmen who voted to abolish Glass-Steagall. These self-dealing gamblers all played a major part in bringing about the near-collapse of the American economy, too.

The televised interview can be seen here. A written transcript is here.

Pensacola Banking Losses

It was only two months ago we found ourselves in casual conversation with a mid-level bank employee who assured us, "You can have confidence in Bank of America. We are the strongest bank in the country."

One month ago, that same employee lost her job. We called the other day to offer our commiserations. She said all she had left were her paltry shares in BAC.

Carleton Proctor of the Pensacola News Journal yesterday resurrected the local history of bank stock ownership and the picture isn't pretty:

Declining bank stock values erode the foundations of a community's wealth, and that is being felt acutely here in Pensacola. The stocks of Bank of America and Regions Bank are both widely held among Pensacolians due to acquisitions of large local financial institutions by those companies many years ago.

First Mutual was the largest financial institution in Pensacola for years before it was acquired by AmSouth back in the mid 1980s. AmSouth later merged with Regions. The "old" C&P Bank was acquired by Barnett Bank in 1993 and Barnett later was acquired by NationsBank which was then acquired by Bank of America.

One local banker told me many people who originally held C&P stock rode the wave through the series of mergers and never sold. Many regret that decision now that the values of those stocks has declined precipitously, and their dividends are reduced to almost nothing.

It can only get worse for local shareholders who, like the ex-employee we spoke with, "never sold."

Nouriel Roubini has been hinting for some time that once we summon the political will we will have to nationalize the "behemoth banks" if we're ever going to clean up the finance mess Wall Street created. Yesterday in the Washington Post he made it explicit:

Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume. Of course, the economy would still stink, but the death spiral we are in would end

Nobel Prize winning economist Paul Krugman is of much the same opinion. As is his fellow Nobel Prize winner, economist Joseph Stiglitz.

Joe Nocera identifies several other banking analysts who agree. You know that nationalization of banks is inevitable when even ubber-conservative U.S. Senator Lindsey Graham says its time has come.

So, when a mega-bank like Bank of America is nationalized, what happens to local stockholders? Their holdings will get further diluted, if not wiped out altogether.

Already, B of A stock has fallen nearly 85% from its high of the last six months. Unless they dump what's left, it seems most likely that local investors who have ridden this falling meteor all the way down from the Barnett Bank days are about to smash into the ground.

Obama's Due

Our own anxiety over rumors of a future "grand bargain" compromise aside, there is much to what Steve Benin says:

Looking back over the last couple of weeks, I've complained a bit about aspects of the economic stimulus bill and the process in which it worked its way through Congress. It's not ambitious enough. There are too many tax cuts. President Obama overemphasized bipartisanship. The White House lost control of the message. House Democrats made too many concessions. Senate Democrats made far too many concessions.

You get the idea.

But the Washington Post has a good piece [Saturday] that adds some perspective to what's transpired in recent weeks. It's a reminder that while the trees have been frustrating at times, the forest looks pretty impressive.
* * *
For historical parallels, the Post piece noted that we haven't seen a legislative win for a president on this magnitude since FDR's banking system overhaul in 1933, "which cleared Congress within days of his inauguration."

We heard a lot of talk after the election from the president and his team about hitting the ground running. I guess they meant it.

Give him his due. Obama has achieved a remarkable legislative victory. And, he did it with all 183 House Republicans spitting on his out stretched hand. Borrowing from FDR, Barack Obama can say just three weeks into his administration that "the forces of selfishness and of lust for power met their match."

Dead Butterfly on a Shoe?

In light of this we have to wonder: Did someone step on a butterfly?

Spare Change You Can't Count On

OK, we get it. While we were gone, apparently, there was a giant recount and the Republicans won.

• Extraordinary rendition is still OK with the Justice Department...


• and so the White House cover-up of U.S. torture policies will continue.
  


• The Republican-dominated U.S. Senate is still throwing Americans out of work....


• ... and still spending more while adding to the jobless lines...
  
  
• ... and refusing to expand health care to the unemployed, elderly, and poor people...
  


• ... while the White House will continue protecting the jobs and perks of the bankers, brokers, and stockholders who wrecked the economy...


• State and municipal governments are still being told to suck wind...
  


• ... while the Administration agrees, in effect, with Republican proposals "to tax teachers, fire fighters, and Joe the Plumber to protect the wealth of the banks' shareholders and to pay high salaries to their top executives."


• God has endorsed Norm Coleman as U.S. Senator from Minnesota.

We need to go on another cruise.

Short vs. Long Term Stimulus

Monday evening Jim Lehrer's News Hour featured an intelligent, informative, and measured discussion of the challenges posed for the Obama administration and Congress in fashioning an effective stimulus package. Truly "fair and balanced", so Fox News fans need not apply.

Participants were David Leonhardt and Greg Ip.

The transcript is here. Now, you can also view the segment here:

The WPA in Pensacola: Yesterday and Today

Pensacola News Journal reporters Louis Cooper and Jamie Page have combined with two front page, above-the-fold articles in today's paper that answer a lot of questions rumbling around in local minds -- and then some. It's terrific business journalism with context, something for everyone, and an inspired editorial assignment.

"Remembering the WPA" by Cooper describes the kinds of WPA projects that brought "creative works as well as brick-and-mortar economic stimulus projects to ... Northwest Florida" during the Great Depression. And, what do you know! Two photos of Milton's recently rescued prize mural by George Snow Hill are included.

One of the photos is partly visible behind Milton historian Nathan Woolsey, on line here. The other is a long black-and-white photo by Katie King, in the newspaper's print edition only, of the complete work.

King's may well be the only professionally done full reproduction of "Loading Pulpwood" in the whole world. It needs to be made more widely available, perhaps in a lithograph format. (We'll take a hundred or two, ourselves, to give as gifts.)

"Local Projects Seek Federal Stimulus Help" by Paige and Cooper is the perfect companion piece. It give us the first shopping list we've seen of specific projects local community governments are seeking, from Pensacola to Navarre and Perdido Key to the little town of Century.

Santa Rosa County, Paige and Cooper report, "has identified nearly $70 million in projects for potential funding in the federal stimulus package, with more than $67.5 million of that in road projects." Escambia County, of course, is still "preparing a list."

The article also identifies legitimate concerns local leaders have that many local priorities could be hijacked by state officials in Tallahasee:

“Large blocks of dollars from the federal government rarely come available like this. Not since the WPA days have they tried to do this kind of stimulus,” Pensacola City Manager Al Coby said.
* * *
Because the stimulus bill is constantly changing, it’s hard to tell how the money will be funneled to local governments, Escambia County Administrator Bob McLaughlin said.

The Florida Department of Transportation is telling cities and counties that transportation funding will come through individual states.

“There is the concern that if the money goes through the state to local governments, how much is it going to be after it goes through those filters,” Coby said. “Those funds could be siphoned or redirected to other places.”

All in all, the two articles and accompanying photos constitute an outstanding example of down-to-earth business journalism with a local focus that educates and informs. Let's hope it inspires follow-ups as the News Journal tries to track down any surviving residents who remember the local WPA, and perhaps finds a way to invite and publish public input on stimulus projects that would meet local needs.

Infrastructure versus Tax Cuts

The American Society of Civil Engineers has issued a detailed report card about the failing infrastructure in the U.S. Overall grade: the dunce's D.

As NYT columnist Bob Herbert writes today about the Economic Stimulus bill proposals ("Risking the Future"):

We’re rushing to bail out the banking industry for what? What kind of country will we have once the bankers are fat and happy again? The U.S. will still be a nation with a pathetic mid-20th-century infrastructure struggling to make it in a dynamic 21st-century world. It’s a blueprint for sustained national decline.

Meanwhile, Mitch McConnell and the diminishing Republican minority continue stalling the stimulus bill and demanding -- what else? -- tax cuts for the rich. We tried that trickle-down nonsense over the last eight years, as David Kay Johnston points out, and look what it got us:

"[T]ax cuts have not worked. The Bush tax cuts, all of them were financed with borrowed money. And where did we end up at the end of the Bush administration? If you add up all of the bailouts that the Bush administration did in the fall, the investments, the spending and the guarantees, it’s over $8 trillion. How much money is that? It is more than all of the income taxes paid by all Americans for the entire eight years of the Bush administration."

Canadian economists agree: Infrastructrure is the preferred way to create jobs and revive the economy.

Obama's big push for bipartisanship is fine as far as it goes, but not to the extent of caving in to bad ideas that have proven themselves worse than worthless.

Everyone by now should know these elementary principles of political economics, part of which is illustrated in the table, below, taken from the recent testimony of the non-partisan Congressional Budget Office director, Douglass Elmendorf:

• Tax cuts work fast, but even in the best of circumstances the multiplier effect in the broader economy is comparatively modest.
  
• These are not the best of circumstances. As Michael Sesit wrote last week for Bloomberg News, "even if you weren’t in hock up to your eyeballs, the odds are you will deposit the extra cash in the bank -- rather than spend it -- especially if you don’t feel secure about your job."
  
• If we have to have tax cuts, they are better directed at lower wage citizens with little or no disposable income than the wealthy. Low-wage workers are more likely to spend the money immediately than rich people who've already hunkered down with their savings.
  
• The economic impact of tax cuts are not long-lasting. Once spent, they are gone.
• Infrastructure spending and the jobs it creates have a vastly greater multiplier effect for the economy as a whole, although it may take several months before being felt.
• Sure, "spending hundreds of billions of dollars takes time," as David Leonhart recently wrote for the Times. But the latest CBO estimate is that"about 64 percent of the money, or $526 billion, would be spent by next September."
• Infrastructure spending continues to boost the economy for years, and often decades, after completion.
  

As James Galbraith has pointed out, another advantage infrastructure spending has over tax cuts is that infrastructure spending can be directly targeted "to stabilize parts of the economy that are otherwise in severe danger of collapsing." Among these are many of the state and local governments whose "expenditures on public services... are very, very strongly affected by declining property tax revenues and the requirement that those states and localities balance their budgets if their revenues decline."

Build new schools, for example, and hire more teachers, fund state highway and bridge repairs, and you not only create jobs and stimulate the economy but you also invest in America's future for coming generations.

It's a whole lot more sensible than paying a bank to stage a $10 million Super Bowl party.

Stimulus versus Bailout,

Nobel Prize-winning economist Paul Krugman yesterday efficiently articulated the important distinction between a "stimulus plan" and a "bailout":

[T]he fiscal stimulus plan — ... should, on its face, be very popular — and the bank bailouts, which are deeply (and understandably) unpopular. Spending on infrastructure commands broad support; rescuing bankers from the consequences of their own folly, broad revulsion.

And he rightly takes the Obama administration to task for not doing much "to make the distinction" as clear as he has. Stimulus, si! Bailout, no!

Bank of America Parties With $10 Million Bailout Money

Just weeks after nicking $45 billion in taxpayer bailout money, Bank of American blew $10 million of our money on "a five day carnival-like affair just outside the Super Bowl stadium," ABC News is reporting.

The bank's extravaganza for Super Bowl Week involved 850,000 square feet of "sports games" and "interactive entertainment" for football fans. The tents alone -- tents!, mind you, not houses with mortgages or the emergency shelters where some former homeowners are living -- cost over $800,000.

Willie Sutton ("That's where the money is") must be rolling in his grave.

Lighter Side of Depression Economics

If you read Sunday's Pensacola Newsless Journal -- and there must be someone else out there who did -- you might have noticed a curious coincidence. Three out of three opinion columnists on the same day held forth on their optimistic views of the current economic mess. Two with measured optimism, one with what can only be called premature nostalgia.

Here's what we understand to be the central point of each column:

Carl Wernicke: Carl supposes, since he wasn't there at the time, that only "a few people died of starvation" during the Great Depression and some people "even enjoyed it at times." Not seeing any signs that birds are falling out of the sky or clouds have stopped scudding, he's loving the present economic troubles, too.

Carleton Proctor: Hectored by readers to find some "good news" in the economy, Proctor says "things could be worse." One might suppose he means this to be a comfort, not a prediction. One could be wrong.

Mark O'Brien: Looking backward, Mark wants us to know he had a terrific time during the recession of 1982, and since a New York Times headline he read says this one isn't (yet) nearly as bad, he thinks a lot of younger people some day will look back on today's recession and realize that they had a great time, too. Do we detect a note of future envy?

We don't know what they're putting in the water cooler down at the PNJ, but they ought to share it with the rest of us.

Ocala National Bank

R.I.P.

Window on Wall Street

Jim Zarroli (NPR reporter), summarized: Former Merrill Lynch CEO/Bank of America executive John Thain --

• spent $1.2 million just to redecorate his office last year
• ran Merrill Lynch to bankruptcy's doorstep
• finagled $4 billion in early December bonuses for fellow execs
• initially demanded a "$10 million bonus for himself
• then came begging, twice, to the U.S. Treasury Dept. for a total of $30 billion in taxpayer money so Bank of America could buy the shitpile he'd made of Merrill Lynch
• which quickly ballooned to $115 billion
  

However, Jim Zarroli assures us, Thain is regarded by Wall Street as "smart"and "illustrious." Indeed, even today he is "well regarded" by his Wall Street peers.

That's all you need to know about Wall Street's standards.

Wall Street Puts Another One Over On You

A reader of Josh Marshall's reports that Merrill Lynch paid $3-4 billion in early bonuses, just days before it was acquired by Bank of America, backstopped by $128 billion in taxpayer TARP funds.

John Thain, former head of Merrill and now formerly with BofA (fired today), paid the bonuses earlier than they are normally paid (late January, February) because he knew that once the BofA deal closed, he would be unable to "reward" all those hardworking Merrill bankers and traders who lost a mere $27 billion in 2008

The reader makes a larger point that Congress (and those of us who vote for congress persons) should keep in mind:

I worked on Wall Street for 15 years, and was laid off late last year. I can tell you this for sure: you don't need to pay a dime in bonus to anyone on Wall Street these days. I know this firsthand: there's nowhere to go!

Where would a Merrill banker unhappy with a donut for a bonus go? Lehman? Bear? Bank of America? There are no jobs on Wall Street, there are no jobs on Main Street (and certainly none that will even pay close to what these guys earn just in salary; my salary alone put me in the 99+ percentile in income).

These guys aren't going to leave Merrill because of no bonus to become CEOs, law firm partners, or MLB shortstops. They'll do what every single person I know on Wall Street that still has a job: they'll keep their heads down and hope the next round of layoffs doesn't include them.

Want to see some limits on executive compensation for federally-funded banks and brokerage houses, anyone?

Citi Field?

Naming the Mets new stadium Citi Field is a slap in the taxpayers' face. Twice slapped, in fact. Better it be named Taxpayers' Field....

Or Marx Field, after Karl Marx. Marx did work for a New York newspaper, after all. And, unlike Citigroup, he paid his own way.

Citigroup Didn't Sleep...

... just as promised in those national advertisements.

Instead, it stayed awake "in tense, round-the-clock negotiations that stretched until almost midnight on Sunday" to get its hands deep into the taxpayers' pockets:

Under the agreement, Citigroup and regulators will back up to $306 billion of largely residential and commercial real estate loans and certain other assets, which will remain on the bank’s balance sheet. Citigroup will shoulder losses on the first $29 billion of that portfolio.

Any remaining losses will be split between Citigroup and the government, with the bank absorbing 10 percent and the government absorbing 90 percent. The Treasury Department will use its bailout fund to assume up to $5 billion of losses. If necessary, the Federal Deposit Insurance Corporation will bear the next $10 billion of losses. Beyond that, the Federal Reserve will guarantee any additional losses.

In exchange, Citigroup will issue $7 billion of preferred stock to government regulators. In addition, the government is buying $20 billion of preferred stock in Citigroup. The preferred shares will pay an 8 percent dividend and will slightly erode the value of shares held by investors.

Riddle us this: if the CEOs of these failing banks deserve tens upon tens of millions of dollars in annual compensation and bonuses, how big a bonus do the taxpayers deserve for saving their sorry asses?

UPDATE
11-24 am

We thought it was a terrible deal. Now, it seems Nobel prize winning economist Paul Krugman agrees: "This bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more."

In the waning days of the Bush administration, Wall Street is robbing the nation's treasury. It's that simple.

What? There's No Free Lunch?

Citibank's imminent rescue will cost the American taxpayer dearly. So will the executive bonuses that Citigroup still, after all of this, plans to pay -- just as soon as they lay off another fifty-three thousand lower-level workers.

Funny how this "bailout" is working out, isn't it? Bad managers for lousy corporations walk away with tens upon tens of millions while the average Joe and Jane who work there in the trenches get shoved out the door with pink slips.

Below is a quote showing how others see our problem... from the decided advantage of Australia, where the Citigroup's full-page promotional ads have not yet begun to run in the daily newspapers and ex-Goldman Sachs executives feel they can speak freely.

There is no free lunch:

The problems of Citibank mean that even if it is saved – and I am sure it will be – it will further contract the amount of credit available to keep American business and consumers active. In the process, it will increase the likelihood of the triggering of trillions of dollars of liabilities in synthetic CDO’s.

All the US politicians are talking about bigger and bigger spending to overcome their problems. The next problem comes when the rest of the world, led by China and Japan, tells the Americans that there is not enough money in the world to fund these rescues, so Americans will have to increase taxes. At a recent Reuters Global Finance Summit, former Goldman Sachs chairman John Whitehead said America's problems will take years to solve and will burn trillions of dollars.

Whitehead points out that at this stage the only proposals on the table involve increasing the US deficit.

Whitehead said: "Before I go to sleep at night, I wonder if tomorrow is the day Moody's and S&P will announce a downgrade of US government bonds.

"The public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favoured a number of new programs, all very costly and all done by the government."

Whitehead said that he is concerned that no lawmakers are against these new spending programs, yet none will stand up and call for higher taxes.

“'I just want to get people thinking about this, and to realise this is a road to disaster,” he said.

It will be a disaster if the Bush Treasury Department hands over more tens of billions of our increasingly shaky money to Citigroup and then lets the Citigroup board of directors and executives stay in place while running the show as if nothing had happened.

We say, treat Citigroup no better and no worse than General Motors. Let 'em go bankrupt or fork over the reins of ownership and control to Uncle Sam. Period. The public -- that is, present and future taxpayers -- deserve a lot more for their money than self-serving promotional ads and a worthless promise from a corporate liar to pay it all back some day.

Citigroup: Always Awake to Take Your Money

Via Atrios and the New York Times, we learn that the Citigroup banking conglomerate, which already has gobbled up $25 billion of your tax dollars and now wants more, has begun running expensive full-page self-promotional ads in newspaper across the nation. Here's the Times' explanation (boldface ours):

In a series of ads set to run in major metropolitan markets on Sunday, Citi plans to tell its customers that its business is fundamentally sound. It acknowledges that “our financial markets have been tested in unprecedented ways,” but argued that it has the diversity and experience to pull through. It throws out a few numbers, in particular 100 (the number of countries it’s in) and 200 (its years of experience and the number of its customers).

The ad concludes: “That’s why now, more than ever, you can feel confident that Citi never sleeps.”

In case you were wondering, the CEO of that "sound" banking mega-corporation, Charles O. Prince, altogether last year took home $25,520,621 in salary, bonuses (for doing such a great job, don'cha know) and stock options.

Here's the ad they doubtless want you to pay for, too:

Banker's Holiday

Eschaton is going to be a bank! Just like everyone else who wants a cut of that dough.

The 'Socialism' Canard

One of the enduring mysteries in Northwest Florida is why so many active and retired military veterans respond so fervently whenever some pol accuses another pol of having "socialist" ideas.
Just the other day, we witnessed a retired Navy officer of no particular distinction begin foaming at the mouth the moment he launched into his claim that Barack Obama's economic plan to let the notorious Bush tax cuts of 2001 expire was "socialistic."

There are few walks of life in America more "socialistic" than the military life that Navy officer has led. In the military, the federal government pays for nearly everything:

• Government-subsidized housing
  
• food
• transportation
  
• health care for the entire family
  
• education
• all job costs
  
• PX consumer goods, and even
  
• one of the last "defined-benefit" pension plans in the land.

To each according to his need, from all of us regardless of ability. Johns Hopkins professor Hillary Bok ("Hilzoy") makes something of the same point today, in a snarky way, with her article "Socialism Is Everywhere."

Mystery solved: The other guy's economic plan always is "socialistic" and "redistributive." My guy's economic plan merely rewards those who "need help" or "deserve" it.