Representative Brad Miller had a recommended diary on for most of Friday evening, The World is Flat...and Crooked, in which he writes that
I’m still waiting to hear "we’re sorry" for the devastation that subprime mortgages caused middle class homeowners.
Whoooaaaa ! The Wall Street "masters of the universe" have just plunged the world into the worst financial and economic crises since the First Great Depression, and drenched eight billion people in God only knows how much misery and anguish, and all we want is from said "masters" is a little contrition?
Not only is no contrition forthcoming – which is why Rep. Miller is blogging this evening – but even if it were, it would serve no purpose. It certainly would not serve justice, at least not what I consider to be justice.
Let me put this is real simple terms - "us" and "them" terms. They have taken and are still taking over $7 trillion from us. This means we are going to suffer, a lot. To fix things, and end the suffering as quickly as possible, we need to take back the $7 trillion from them.
First, anyone who expects any contrition from anyone on Wall Street simply has no idea what they’re dealing with. Yeah, yeah, all the talk about Wall Street needs Main Street and Main Street needs Wall Street sounds real nice and cozy.
It’s complete and utter bullshit. As in, BULL SHIT. Bovine excrement. Cattle paddies. Am I making myself clear here?
Here’s what the Wall Street Journal is reporting about Credit Suisse’s plan to hold bonuses in a special fund for eight years before actually paying them out:
The announcement elicited livid reactions from senior bankers, many of whom questioned whether it was legal. Many said they believed they were being unfairly punished for risky assets bought by colleagues in distant parts of the firm. And while the securities may prove lucrative over time, many bankers are already stretched for cash.
"I did not lose one penny for this firm this year," complained one senior banker who advises on mergers and acquisitions. "I guess I had a hard time vacillating between which was more offensive: that cash is no longer cash or that equity is no longer equity."
I mean, doesn’t anyone remember Robert Rubin’s arrogant refusal to accept responsibility just three weeks ago?
And look what’s happening now: the Fed is even bailing out hedge funds!
When you’re dealing with Wall Street, you’re simply not dealing with nice, normal people. I don’t care how much BondDad and all his acolytes will shriek about this, but that’s just the plain truth. They sold their souls to get on the great American gravy train to riches. Now that the train has wrecked, we’re supposed to do what? Help them out? For what purpose? To go back to doing what they were doing before?
I don’t f#@king think so.
Let ‘em burn.
One reason community banks are doing so well right now is simply that they never became too clever for their own good. When other lenders, including underregulated giants like Ameriquest and Countrywide, started peddling ugly subprime mortgages, community banks stayed away. Banking regulations prevented them from taking on the kind of debt ratios assumed by their competitors, and ties to their customers and community ensured that predatory loans were out of the question. Broadway Federal, for its part, got out of single-family mortgages when they stopped making sense. "A borrower comes and asks, ‘Do you do interest-only, no-down-payment, option ARMs?’ " recalls Hudson, with a chuckle. "No!" The bank focused instead on expanding its reach to niche borrowers, such as local churches. . . .
Today, with the world’s system of anonymous high finance in crisis, small-scale community banks, thrifts, and credit unions—all regarded until recently as vestigial players in a new world of global consumer finance—are setting an important example. If federal policies were in place to provide proper support to small-scale financial institutions, Washington could do a lot to alleviate the country’s most serious economic problems: its lack of savings, its runaway consumer debt, its dwindling supplies of social capital, and its vulnerability to financial contagion brought on by Wall Street excess. By encouraging thrift, responsibility, and a sense of community, small-scale financial institutions could play a leading role in helping us dig out of this financial meltdown—and in helping to fend off the next one.
The Washington Monthly article is sub-headlined,
While the behemoths of Wall Street stumble and fall, humble local banks are doing just fine, thank you. Their surprising resilience holds a key lesson for twenty-first-century global finance.
Well, it’s no surprise to me. All anyone had to do is read the reports put out by the staff of the regulatory agencies – something you would think is what economics and business correspondents and financial regulators are supposed to be doing. But, no, they don’t. So here’s the relevant parts of my diaries again:
. . . creating, selling, and trading financial derivatives is entirely the province of the small number of investment and commercial banks that have hundreds of billions of dollars in assets. In other words, the big Wall Street banks. Take a look at this graph from the Third Quarter 2007 Report on Bank Derivatives Activities by the Office of the Comptroller of the Currency
Look at that bottom line that stays flat no matter how much derivatives increases. That’s the amount held by end-users. End-users ?! So it’s the banks that are holding most of the derivatives. Now, this is just commercial banks, and does not include derivatives activities of investment banks.
According to the Federal Reserve Board’s Report on the Condition of the U.S. Banking Industry: Second Quarter, 2006
derivatives holdings of the 50 largest bank holding companies as of the second quarter of 2006 totaled $ 117,631 billion, or $117.6 trillion.
Derivatives holdings of all other reporting bank holding companies in the United States was $88 billion.
In fact, only five commercial mega-banks - J.P. Morgan Chase, HSBC, Citibank, Bank of America, and Wachovia – account for well over 90 percent of derivatives activities by commercial banks. Here’s a graph from the OCC report:
So come the next "too big to fail" crises, I think it would actually be better to let the institution involved fail. And let it take the rest of the big Wall Street players with it. As far as the real economy would be concerned, good bye and good riddance. We can let the big Wall Street players collapse into the ruin they so richly deserve (pun intended) while insulating the rest of the financial system and the real economy. . . .
Yes, I will make the idea explicit here: the goal in the next crisis point of the financial collapse should be to ruthlessly euthanize the biggest institutions on Wall Street. These big commercial and investment banks are NOT providing any net value to the economy – they are actually sucking value out.
That was me writing Tue Apr 22, 2008 after the Bare Sterns collapse and repeating myself on Wed Sep 17, 2008, the week the Wall Street investment bank model vanished forever. And here's economist Randy Wray writing on TPMCafe two days ago:
Finally, there has long been a doctrine of "too big to fail", which counseled that we can let small banks fail but we must always bail out the big ones. This current crisis has revealed such policy to be nonsense. I advocate a "too big to save" doctrine: the big Wall Street banks serve almost no public purpose. Let them fail. Save the small and medium sized banks that actually lend to firms and households.
Look, folks, I can only explain this so many different ways. The way out of these crises is very simple:
Wall Street must be crushed. Take the top 20 people, the top 100 people, whatever, from each and every firm – including the law firms - on Wall Street AND LOCK THEM UP. Throw away the keys. They are NOT of any value to our society right now. They are a greater danger than anything else, because they are the ONLY political obstacle to getting the financial and monetary reforms we need to get credit flowing to rebuild our economies. This includes Robert Rubin and the person selected to be the next Treasury Secretary, Timothy Geithner. (Probably Rahm Emmanual, too, but I’m willing to let him serve Obama and see if it works out). Sorry, but that’s just the plain truth. We need to be ruthless and punitive. Just the way conservatives have been with the over one million of our fellow Americans that are now in prison.
Maybe in a few years, after reeducating the "masters of the universe" in what real economics is all about, it might be safe to let them out on the streets again.
Until then, get the criminals behind bars, to keep the rest of us safe.