How About a Big ol’ Game of Monopoly?
Posted: August 28, 2009 Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, Surreality, The Bonus Class, U.S. Economy | Tags: banking industry, corporate welfare, externalities, K Street Lobbyists, rent seeking Comments Off on How About a Big ol’ Game of Monopoly?
If we’re a ‘free market’ economy, why do we keep protecting so many businesses and promote monopoly? Well, I suppose the practical answer is that businesses who can afford to do so will rent-seek via K Street and politicians looking for donations will happily give them whatever they want. The bigger question is why do we keep politicians in office that DO this to us? Why do we put up with policy makers that continually keep corporations safe from the economic Darwinism implied by capitalism while we pay for all their negatives like externalities, restricted output, and high prices? Can we just say, for once, that the real welfare queens in the economy are the bonus class and these kinds of corporations? They suck up the public funds like a bunch of leeches at a Louisiana picnic. Today’s news just provides us this ongoing example from the banking industry. It’s from WaPo and David Cho. Go read Banks ‘Too Big to Fail’ Have Grown Even Bigger; Behemoths Born of the Bailout Reduce Consumer Choice, Tempt Corporate Moral Hazard for a really good example of market failure. It makes me want to socialize the lot of them! I mean, if we’re going to continually subsidize them and give them monopoly status, we might as well have a stake in their assets.
The crisis may be turning out very well for many of the behemoths that dominate U.S. finance. A series of federally arranged mergers safely landed troubled banks on the decks of more stable firms. And it allowed the survivors to emerge from the turmoil with strengthened market positions, giving them even greater control over consumer lending and more potential to profit.
J.P. Morgan Chase, an amalgam of some of Wall Street’s most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show.
A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected.
“It is at the top of the list of things that need to be fixed,” said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp. “It fed the crisis, and it has gotten worse because of the crisis.”
I really hate going to the mail box these days. I am now banking with Capital One not by choice but by merger. I now have a trading account with J.P. Morgan, not by choice but by merger. My mortgage is miserably serviced by Wells Fargo, not by choice but by secondary market transaction. Each day, I find myself to be a customer of a behemoth bank with whom I would not choose to do business voluntarily. It takes me forever to get out of customer service automated voice response hell to try to figure out how to close my account so I can go elsewhere. An expedition to Patagonia would be easier.
“Be not afraid of greatness; some are born great, some achieve greatness, and others have greatness thrust upon them”
William Shakespeare.
“And some have greatness handed to them on a silver platter by their government”
Dakinikat.
Feel the Bern!
Posted: August 25, 2009 Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, U.S. Economy | Tags: Ben Bernanke, Federal Reserve Bank, Larry Summers Comments Off on Feel the Bern!While I stuck the announcement into the morning links, you had to know that I’d front page this announcement some time today. So you also probably knew that I breathed a quiet sigh of relief last night when I found out we were not getting La La Summers for Fed Chief. President 
Obama has decided to re-appoint Fed Chairman Ben Bernanke to another term.
I awakened this morning to the bleating of the bloggies on this move. Of course, I have this tendency to look at folks’ credentials before I decide to take their opinions seriously. It also helps to know their political agendas and frames. Chairman Bernanke has probably had the most challenging time at that job since Paul Volcker took over the Fed helm back in the days of rampant inflation and Carter malaise. So many blogs have come to criticize Bernanke, but I’m just glad we’re not here to bury him. He may not be perfect, but he’s a damn sight better than just about everything else out there. Ben Bernanke is an economist’s economist.
Wall Street and academic economists in recent weeks showed enthusiasm for giving Mr. Bernanke a second term, and some administration insiders felt similarly even though Mr. Bernanke was appointed by — and served in the White House of — President George W. Bush. Appointing a Democrat such as Janet Yellen, president of the Federal Reserve Bank of San Francisco, or Alan Blinder, former Fed vice chairman — both former advisers to President Bill Clinton — would have been popular with many Democrats. But a move by Mr. Obama to install his own person at the Fed might have have rattled markets and unsettled the foreign investors.
Phil Izza at the WSJ has a pretty good line up of comments from both political and financial folks on the Bernanke appointment. Some of the performance the financial markets today(so far, all up) could be linked to the decision as the Fed Chair heads up the Federal Open Market Committee and sets its agenda. It is a rare FOMC that will go against the recommendations of their chair when setting monetary policy(primarily levels of interest rates, exchange rates, and bond offerings) although there is usually a healthy amount of debate and exchange or so I’ve heard since the meetings are top secret.
- I think it’s good news for the Federal Reserve. It’s good news for the country. It’s a great choice. Chairman Bernanke has done a terrific job in bringing openness to the Fed. He has been bold and creative in dealing with the financial crisis… It was not clear to most people that the crisis was going to be as broad-based, and that the excesses in the financial markets and in lending were as broadly based as they turned out to be. Even at the start, he was willing to consider all options to deal with what appeared to be more a liquidity than a solvency crisis. As it began to become more clear that it was a crisis of solvency and leverage and a classic credit crunch, he didn’t flinch in bringing enormous creativity to bear in mitigating the problem –Richard Berner, Morgan Stanley
- Having a new chairman come in at this late date would put the Fed engineered solution to both the recovery and the exit strategy at risk. The Federal Reserve made a hasty exit from easy money stimulus in the 1930s and we know how that worked out… Mistakes have been made at many regulatory institutions during this crisis, but all the Fed’s mistakes would have been made by any man according to the prudent man rule. Bernanke is a true prudent man who calls them as he sees them, and knows the ins and outs of policymaking… If he can pull off this recovery that still needs nurturing, he could well go down as one of the greatest Fed Chairmen in history. –Christopher Rupkey, an economist with Bank of Tokyo-Mitsubishi
It’s just a little bit of Policy Fail Repeating
Posted: August 6, 2009 Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, president teleprompter jesus, Team Obama, The Bonus Class, The DNC, The Great Recession, The Media SUCKS, U.S. Economy | Tags: bad bank, Fannie Mae, Freddie Mac, homeownership, James B. Lockhart, mortgage origination, secondary market for mortgages, Treasury Secretary Timothy F. Geithner Comments Off on It’s just a little bit of Policy Fail Repeating
When you let lobbyists make public policy, failure is an acceptable outcome. That’s because the point of the policy isn’t the public and isn’t necessarily doing what will work. The point of the policy is to enrich and perpetuate the entrenched interests. Every other possible goal becomes expendable including those that have to do with protecting the public purse and welfare.
Imagine my lack of surprise when I saw that the creation of a “bad bank” policy is back in today’s WaPo headlines. Go take a look at “U.S. Considers Remaking Mortgage Giants:’Bad Bank’ Would Wipe the Slate Clean for Fannie Mae, Freddie Mac by Taking Their Toxic Loans” and weep. This administration will reward bad players as long as there is a political reason for them to exist. So, instead of real reform of Fannie and Freddie, they’re proposing a solution that sweeps past mistakes under the rug and allows these failed institutions to operate in the same irresponsible way that brought them their current fate. There is no such thing as the discipline of the market or the bankruptcy court when you’re big enough to hire K Street impresarios to keep your show running and the federal government enables you.
The Obama administration is considering an overhaul of Fannie Mae and Freddie Mac that would strip the mortgage finance giants of hundreds of billions of dollars in troubled loans and create a new structure to support the home-loan market, government officials said.
The bad debts the firms own would be placed in new government-backed financial institutions — so-called bad banks — that would take responsibility for collecting as much of the outstanding balance as possible. What would be left would be two healthy financial companies with a clean slate.
The moves would represent one of the most dramatic reorderings of the badly shattered housing finance system since District-based Fannie Mae was created by Congress to support mortgage lending during the Great Depression. Both Fannie Mae and Freddie Mac, based in McLean, have government charters to buy home loans from banks, which they then repackage and sell to investors. The banks can then use the proceeds to offer more loans to home buyers.
The leviathans became emblematic of the financial crisis when they were effectively nationalized in September amid a market meltdown that revealed much of their holdings to be troubled. The government has since pledged more than $1.5 trillion, including $85 billion in direct aid, to keep the mortgage market working through Fannie Mae and Freddie Mac.
The proposal, which is preliminary and one of several under discussion, is scheduled to be taken up by the White House’s National Economic Council on Thursday.
What about the Japanese lost decade and all the papers and studies written about the bad bank policy did these folks miss? Well, of course, you do know that the head of the “White House’s National Economic Council ” is La-La Summers, right? Mister, I got mine from Wall Street? Let’s look at the other players who buy into this. I’ll just highlight them so you can see that it’s basically the same players that had some kind of supporting role in the original failure. Why does Washington D.C. continue to reward the very same people and players? It has too be some thing pathological.
What’s That Lassie? Little Timmy’s in the Well AGAIN?
Posted: August 4, 2009 Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, president teleprompter jesus, The Bonus Class, The Great Recession, U.S. Economy | Tags: Ben Bernanke, CNBC, FDic, FED, Larry Summers, Mary Schapiro, Naked Capitalism, SEC, Sheila Bair, Timothy Geithner, Wall Street Cheerleaders, Zero Hedge Comments Off on What’s That Lassie? Little Timmy’s in the Well AGAIN?
Wow, it looks like Turbo Tax Timmy has gone rogue! We better send the press up to Alaska to chase down another Palin rumor. First, there’s that nastiness over the weekend with the Stephanapolous show on ABC where he explicitly said that the administration wasn’t ruling out new taxes on the middle class. (Something Larry-the-la-la Summers also inkled, but hey, he’s not a cabinet officer, he’s something akin to a Czar that has to be overthrown by something other than scandal and public displays of stupidity.) I believe that gave Robert Gibbs Excedrin headaches number 349-357 during yesterday’s presser.
Now, there’s rumors of a temper tantrum in the presence of all the nation’s topic economists and financial regulators outlined here in the WSJ. It seems he’s not getting the Obama way on this one. The ladies in the room have taken exception to his granting Ben Bernanke (possibly later, this year, La-la Summers) all the fun and power. I guess being an independent regulator with an agency all to yourself just isn’t what it used to be; especially when you have scary lady parts and a huge brain.
Mr. Geithner told the regulators Friday that “enough is enough,” said one person familiar with the meeting. Mr. Geithner said regulators had been given a chance to air their concerns, but that it was time to stop, this person said.
Among those gathered in the Treasury conference room were Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Schapiro and Federal Deposit Insurance Corp. Chairman Sheila Bair.
Friday’s roughly hourlong meeting was described as unusual, not only because of Mr. Geithner’s repeated use of obscenities, but because of the aggressive posture he took with officials from federal agencies generally considered independent of the White House. Mr. Geithner reminded attendees that the administration and Congress set policy, not the regulatory agencies.
Mr. Geithner, without singling out officials, raised concerns about regulators who questioned the wisdom of giving the Federal Reserve more power to oversee the financial system. Ms. Schapiro and Ms. Bair, among others, have argued that more authority should be shared among a council of regulators.
This current turf battle is only the latest move by a group within government possibly thwarting the Treasury’s plans to continue uploading tax dollars to the bonus class in the guise of saving the financial sector. If there’s still disagreement about this point, can you imagine what other things are going on in complete disarray behind the scenes? Who is really in charge of solving this overt act of sibling rivalry? Well, if you have figured out where the buck stops in this administration, you’re doing better than me. (Hint: these folks are ALL presidential appointments).
All Eyes on Ben
Posted: July 27, 2009 Filed under: Bailout Blues, Global Financial Crisis, The Great Recession, U.S. Economy | Tags: Ben Bernanke, Dennis Kucinich, Federal Reserve Bank, Nouriel Roubini, PBS News Hour, Regulating the FED, Ron Paul, ZIRP Comments Off on All Eyes on Ben
I’ve been Fed watching again. That’s something of both an occupational hazard and a weirdish hobby for me. Usually, Fed chairs stay off the lecture circuit until they retire and write their biographies. Ben Bernanke, however, is not your usual Fed Chair and these are not usual times. I think you may recall that part of his observations with being in charge of monetary policy when there’s no room drop interest rates (ZIRP) has to do with communicating future Fed actions to a nervous public. This continues.
Bernanke was in Kansas City over the weekend speaking to normal people and Jim Lehr of the PBS program News Hour. There were several things from this exchange worth mentioning. The first is a response to the meme circulating around the libertarian circuit that there is no accountability between the FED and any one in Washington. That is untrue for several reasons. First, because the majority of appointments (including the Fed Chair) to the FOMC are made by POTUS and approved by the Senate. Second, the Fed Chair makes biannual trips to the Hill to speak with both houses of Congress and take questions. Third, they publish their internal records as well as their research continually. It’s a matter of public record. The only thing Congress doesn’t get to see is the rationale behind monetary policy which is perfectly in keeping with the idea of independence supported overwhelmingly by evidence and theory. They have to the right to see the Fed balance sheet and items now. What they do not have is the right to ‘audit’ monetary policy. Something that would be a disaster.
“The Federal Reserve, in collaboration with the giant banks, has created the greatest financial crisis the world has ever seen,” Representative Ron Paul, Republican of Texas, said at a House hearing last week in which Mr. Bernanke testified about the state of the economy.
Republican lawmakers portray the Fed as the embodiment of heavy-handed big government, and have called for scaling back the central bank’s regulatory powers. But liberal Democrats, like Representative Dennis J. Kucinich of Ohio, have accused the Federal Reserve of caving in to demands by banks for huge bailouts, for failing to protect consumers against dangerous financial products and for being too secretive about its emergency rescue programs.
More than 250 lawmakers have signed a bill sponsored by Mr. Paul that would allow the Government Accountability Office to “audit” the Fed’s decisions on monetary policy — a move that Fed officials see as a direct threat to their political independence in carrying out their central mission of setting interest rates.
A lot of the complaints at the appearance came from the audience who basically aired Kucinich’s view that the Fed appeared all too willing to bail out the reckless big guys while letting the little guys go belly under. Bernanke did not shy away from the questions at all.
When a small-business owner asked Mr. Bernanke why the Fed helped rescue big banks while “short-changing” small companies, Mr. Bernanke answered that he had decided to “hold my nose” because he was afraid the entire financial system would collapse.
“I’m as disgusted by it as you are,” he told the audience of 190 people. “Nothing made me more angry than having to intervene, particularly in a few cases where companies took wild bets.”
He used a most interesting metaphor when explaining why he had to hold his nose and bail out the gamblers. He basically said, if an elephant falls it crushes the grass beneath it. Wow, a zen moment from a Fed Chair. Who’d have thought that was possible? He also said that the main reason he did it was because he didn’t not want to be the Fed Chair at the time of the second Great Depression. I’d say that was succinct enough.
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