Yesterday, Teabagging, Today Sandbagging

nancy-pI can’t tell you how disappointed I am that America’s first woman Speaker of the House has turned into a player for all seasons.  First, we find out exactly how much she knew about the torture methods of the Bush Administration and when she knew about it.  Then she tells a big lie about it.  Rumors still abound that she was wanted Obama as POTUS because she could be the Queen Bee of Capitol Hill.  His lack of knowledge and experience was certain to put her in a position of power.  Too bad she is more of a demagogue than a democrat because if there was ever a chance to be the Queen of the Hill, it would’ve been with reform of the financial system.

Instead, we’re seeing her go after yet another woman who has tried to champion the voters/taxpayers over big party money.  A head line from Yves Smith at Naked Capitalism says it all for you: “On Pelosi’s Duplicity and Apparent Sandbagging of Elizabeth Warren, watch dog of the TARP”.  It’s a typical Capitol Hill soap opera if there ever was pelosiboarding01-copyone.  As appears customary with everything economic coming out of the democratic wing of our congressional whores,  Pelosi is siding with the financial services industry over the voters/taxpayers. Yves first reminds us of the strange dance surrounding the birth of TARP.  Remember, life was supposed to be different once the Democrats retook the Congress.

Recall how instrumental Pelosi was in getting the TARP passed. The widely mentioned gambit of Paulson getting on bended knee to plead for her support was a nice bit of theater to cover how readily she fell into line. The other justification for the Democratic leadership support was the claim that Treasury had given a closed door briefing to Senate and House leadership telling them the world would end if the TARP was not passed yesterday.

Some have suggested that Treasury provided data on the potentially disastrous money market fund withdrawals around the time of the Lehman failure (recall the death of Lehman led Reserve to break the buck). but that problem had already been addressed in September in part via the Fed providing non-recourse loans to purchase asset backed commercial paper, and more fully in October via yet another Fed facility. In other words, if the money market fund panic was indeed the scare tactic, the TARP was not the remedy.

But even if we give the devil its due, the performance of the Democratic leadership was pathetic. The most heinous aspect of the bill, putting the Treasury secretary outside the reach of law, was never cut back. The first draft, a doodle on a napkin, was offensive to democratic processes, the second draft added a lot more words but was still way too thin on basics, like objectives, criteria, procedures, and the final draft loaded tons of pork in to assure passage. And the ironies kept multiplying. The bill was wildly unpopular even with the media falling into line (and in the later stages, a clearly orchestrated campaign to have financial services industry employees contact legislators to counter the groundswell of opposition). And it was Senate Republicans who were the last holdouts.

Here’s the soap opera, errr, money line.

So why are we pointing a finger at Pelosi in particular? The next chapter is her appointment of one Richard Nieman to the Congressional Oversight Panel. Under the TARP rules, the House Majority leader selects one of the oversight panel members, so this choice was completely under her control.

Hmmm, now that’s interesting.  Nieman just happens to be the New York Superintendant of Banks who helped Goldman Sachs set up its bank holding company. That’s exactly the structure to get one in line for  TALF, TARP, and cheap loans at the discount window using toxic assets for collateral.  So, I ask myself, why does EVERY discussion of a democrat, financial institution regulation, and tax payer bailout money always work it’s way into a story woven by some one with some connection to Goldman Sachs? Why indeed?

Nieman fell out with the other Democrats and wrote a joint opinion with John Sununu (see page 88 of the document). If you were somehow ignorant of the fact that the Summers/Geithner programs embody massive hidden and inefficient subsidies to banks (the Public Private Investment Partnership), questionable uses of the FDIC, and the employment of the Fed as quasi-fiscal agent, the critique might sound reasonable. But to anyone with a passing acquaintance with the facts, the dissenting views are absurd. To give you an idea of how far they have to stretch to make their arguments sound plausible, they grasp at the straw of “oh yeah, that over 50 point spread between market price and bank valuation for toxic assets is due to a liquidity discount.”

There is also sophisticated mud-slinging, for instance, suggesting that the panel’s recommendations run against the

…preference for maintaining a private banking system via temporary public support or partnership, which is consistent with this country’s tradition of private rather than government control of business

That’s code for “Warren is a commie”. Didn’t anyone tell these clowns that no private investor with an operating brain cell would give so much money to a private enterprise without demanding a good deal of oversight and control? And at a time like this, the public versus private polarity that they invoke has been blunted. Pretending that wards of the state are entitled to the rights of normal private concerns is absurd, yet that’s the fiction that Nieman and Sununu present.

Maybe I’m too cynical, but this sure looks like the behavior of someone looking for his next, bigger meal ticket.

So, Nieman’s Pelosi’s appointee and he sides with the Republicans?  Isn’t that a bit odd?  Yves says yes, and speculates:

But then we come back to Pelosi. I can’t imagine that Nieman would have fallen in with the Republicans without at least as a courtesy informing Pelosi in advance. And if she had a big problem, she would have gotten him to back down (either not siding with the opposition or issuing a separate view that was more ambivalent). So Pelosi is at a minimum sitting this one out (which I deem unlikely) or on board with the program to undermine Warren.

So, are Elizabeth Warren’s days of going after Secretary of Treasury Timothy Geithner numbered?  Well, there are a quite a few articles floating around that are suddenly critical of her oversight position.   Here’s Joe Wisenthal of Clusterstock:

But a number of commenters are making some pretty compelling arguments that TARP watchdog Elizabeth Warren is blowing her credibility in the manner she’s going after Geithner. The thing is, Warren’s job isn’t to be a shadow Treasury Secretary. It’s not her job to decide the best way to bailout the banking system. That’s not what she was asked to do, nor (perhaps more importantly) is it her area of expertise.

Here’s Forbes‘ Thomas Cooley:

Clearly, this is Elizabeth Warren’s particular crusade against the banks, since a majority of panel members dissented from the direction the report took and two refused to sign off on it at all. Her letters to Secretary Geithner and Chairman Bernanke stop just short of attacking them for trying to restart the market for asset-backed securities. These markets have been an important part of the financial intermediation system for decades, funding student loans, consumer credit and small businesses. But Professor Warren has had a long-standing antipathy to consumer credit markets.

The sad thing is that the COP now seems completely politicized and fractured at a time when there are important questions to be asked. There is plenty of room for thoughtful analysis of the stress tests. For example, how do accounting rules and the evolving economic contraction affect their validity?

Financial Blogger Eric Falkenstein at Falkenblog:

She’s an unqualified advocate for the little guy in the most direct way. So, anything that would cost such individuals more, or take away their power in a negotiation, is considered bad. Such thinking is antithetical to economics, because good economics looks at the unseen as well as the seen, indirect effects, which are often effects on future behavior via the incentives of the rules. Her arguments always have the flavor of intelligent but ignorant earnest students in High School sociology classes: businesses should be forced to lower prices and raise wages and benefits. I guess her template is India or Venezuela. She is a caricature of a simple minded do-gooder because the solution to every problem as merely having a large organization write a check or give stuff away. She takes the size of the economy, its production of goods and services, as a given.

She’s on TV shows all the time because journalists and left-wingers agree with her conclusions, and she’s from Harvard, so she can make an absurd statement and get away with it because we all know Harvard contains only the Best of the Best in thought. She contributed to John Edward’s book, Ending Poverty in America published in early 2007, which argued for more home ownership in America via what came to be known as NINJA loans.

The funny thing is that passes as criticism.  I actually LIKE those credentials.  I’ll let Yves speak to her bottom line because she carries this forward to the potential of a Pecora-like Commission to figure out why the financial system can’t appear to heal itself.

I hate to say it, but I think Warren’s days as COP head are numbered. She is clearly now boxed in by being in the weird position of being in the minority. The opposition reports took issue with the very premise of her approach. If, as I suspect, the behind the scenes fight is worse than what can be seen at a remove, the longer she stays on, the greater the risk of being tainted.

And what do we make of Pelosi’s recent sponsorship of a new version of a Pecora Commission? Her sudden interest, after the COP report came out, seems very oddly timed and inconsistent with her choice of and failure to rein in Nieman.

My reading is if any panel results, it will be a sham effort, designed to make only a superficial inquiry and shake a finger at a few extreme practices.

If Team Obama will give torturers a free pass (a very small group that has nevertheless done tremendous damage to America’s standing in the world), there is absolutely no way it has any appetite for exposing the massive fraud in the financial system. Obama does not do conflict, and his “Let’s not dwell on the past” is tantamount to appeasement of the oligarchs and coddling of the worst practices of the Bush regime.

But if we are lucky (and we’d need to be very lucky) history might repeat itself. The original Depression investigation was also a sham exercise, but Pecora, brought in to write the final report after three previous investigators were fired or quit, asked to reopen the hearings, and some initial successes, plus the arrival of the Roosevelt administration, gave the probe a new leash on life.

But with the both the Democrats and the Republicans firmly in the hold of the banking classes, it will take something more on the order of a miracle to get a serious inquiry underway.

Well, Yves, we can only hope.


3 Comments on “Yesterday, Teabagging, Today Sandbagging”

  1. 1539days says:

    For all the talk of Obama manipulating the sheeple who voted for him, nothing beats the body snatching that went on during the TARP battle. You had an unholy alliance of President Bush, a Pelosi House and Wall Street trying to engineer a massive payout with no restrictions.

    Republicans initially held on to this principle that if they didn’t believe in government intervention, maybe they shouldn’t vote for a bailout. That was a clear sign of Pelosi’s incompetence, allowing a vote when she didn’t know the outcome.

    Then pressure was applied by Bush, a growing number of Republicans, John McCain and a mix of pork and back room dealing to bribe them into voting for it. The vote itself is facinating. Senators not up for election that year voted for it, ones up for election did not. Democrats and Republicans voted in similar proportions as if they worked out who had to take the bullet for this legislation beforehand.

    I read some of it. I was amazing that most of it referred back to the Secretary of the Treasury. Basically, it was a blank check of a half trillion dollars for Paulson. It is everything wrong with Washington, and now they want to hide it.

    • dakinikat says:

      This was just an unbelievable failure of government for and by the people. We can always hope that eventually, some brave lawyer will take to SCOTUS and heads will roll. If not, the experiment started by many brave people has been severely threatened and I’ll be the first to pick up the musket and defend the constitution!

      • 1539days says:

        Holy crap, that’s what I’ve been blogging about all week. I’ve come to the conclusion that we have to impose term limits on the federal government (maybe state and local, too). Regardless of party, it’s time to vote the other guy in until something is done about this political class structure.