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View Diary: BREAKING: Chair of New York Fed Resigns (109 comments)

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  •  Personalization (7+ / 0-)

    What seems to be happening is that there needs to be the name of an individual in order for the thievery to get into the news.  It has to be personalized for the media to cover it.  Remove the individual and the problem is supposedly solved in the melodrama of another ten day wonder.

    Solar is civil defense. Video of my small scale solar experiments at solarray.

    by gmoke on Thu May 07, 2009 at 07:49:28 PM PDT

    [ Parent ]

    •  Exactly (5+ / 0-)

      And I think that while the specific problem that was emphasized may not have been the worst of the problems, we were still pointed in the right direction, and this is good.  It was kind of like tips of icebergs that we were seeing.  

      It got people watching and listening.  And it gave those in power pause.  It's harder to generalize the problems now and expect people to fall for it.

      An aside, I find it interesting to read Spitzer's articles.  This isn't the first time he posed questions that are intended to lead journalists and the public to the right places to look.

      "The true measure of a man is how he treats someone who can do him absolutely no good." --Samuel Johnson

      by joanneleon on Thu May 07, 2009 at 09:12:03 PM PDT

      [ Parent ]

    •  It's not the thievery that is at issue (6+ / 0-)

      Maybe these stories - Friedman's GS share purchases, Lewis' SEC issues, the AIG bonuses, the Citigroup air force, etc - will catalyze some sort of public focus on the overall process.  Maybe.  But I tend to think it is all an enormous distraction.

      This afternoon - even as Friedman's letter was released - the Fed released its stress test.  The government is going to stick another $11.5bn into GMAC, which shouldn't even have become a bank holding company in the first place (and whose conversion/original TARP infusion created a windfall for PIMCO) and only has $189bn in assets.

      For $11.5bn you could create a brand-spanking new auto lender with no historic liabilities and the old banking subsidiary could be taken into receivership.  In fact, you'd have cash left over.  But that would hurt the bondholders of GMAC, and no one dares hurt them, so instead the taxpayer gets hurt.

      No one at Fed/Treasury is getting a kickback.  They probably won't even get a good dinner out of it.  But that's the deal we should be focused on.

      •  So why are they doing it? (3+ / 0-)
        Recommended by:
        gmoke, Seneca Doane, Taunter

        This is a frankly speculative question... so what's your speculation? Here are some primitive suggestions:

        1. Class interest: they (the Fed directors) can't accept a world in which people like them suffer a serious setback.
        1. Conflict of interest: they personally would suffer setbacks if they did the sensible thing. (You have already indicated you don't think this is the case, but I include it as a logical possiblility)
        1. Power games: who are the bondholders that would be hurt, and what leverage do they have that is external to the nominal terms of their contracts?

        I'm particularly intersted in #3. There's law, which is kind of squishy, and there's natural law, which is not. For example, if some of the bondholders are sovereign funds of other nations, whom we depend upon to purchase the next round of US debt, it would not do to wipe them out on the debt they already own. Even if it is "legal", it might still be a really bad idea.

        •  Can I offer a fourth option? (6+ / 0-)

          I clearly believe #1 is true - I have a post about it here - but it is insufficient.

          #2 is only true insofar as it is a derivative of #1.  I don't think Hank Paulson was overly concerned with Hank Paulson's bank account, but he couldn't bear the thought of the firm he loved being driven to bankruptcy by what he took to be the financial equivalent of an asteroid strike, so he broke a few rules.  He had interests, but they were not related to his personal finances.

          #3 was real with Fannie/Freddie - the Chinese were enormously invested in agency debt - and a bit less real now.  The pension plans and insurance companies and wealth funds who would be hit can't do anything to us; it's more that we are afraid of what will happen when and if they are hurt.

          And that brings me to my #4, and what I take as the real answer: fear.

          Suppose you are frantically sandbagging a levee during a flood.  Someone says "this is crazy; there's way too much water, and while we stand here our escape routes are being cut off.  Let's leave, get to high ground, and come back when the waters recede."

          In the comfort of your dry house, you might say of course you would leave.  But in the moment, when you've been working full-tilt and are drenched and tired and don't know if the levee will collapse before you even get to your car, or if the roads are already flooded and you are going to a trap, well, the natural tendency is to stand firm and keep the sandbags coming.

          We underestimate the strain these guys are under and the tunnel vision they rapidly develop.  And I am reminded of the reason Robert Caro says Robert Moses got so much of the Federal government's construction funds: he always had a plan, the plan was always on time, clear, and simple.  Lots of his plans were dumb - bridges built in the wrong place, freeways the wrong width, etc - but they were organized and the competition was just a bunch of loud noises.

          Imagine you're Geithner - a go-along, get-along gofer for the big NY banks.  The world gets turned on its head, you're working 110 hour weeks and hearing dozens of plans thrown around.  They all vaguely make sense, and they all seem to come from very far away.  Then Lloyd Blankfein sits down next to you and shows you his presentation, and it's nicely produced and the numbers tie and it's the responsible choice.  What do you do?

          •  I like it (3+ / 0-)
            Recommended by:
            gmoke, shenderson, Taunter

            Human nature is a form of natural law. Good (speculative) explanation of Geithner's state of mind.

            Now I wonder about Obama's state of mind. He can hardly be less busy than Geithner, but of course he can't be as stuck in one silo either. Does there come a point where he says "Hey wait a minute, this isn't working"? Or does he become as invested as Geithner in the effort that has already been made?

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