Three new/breaking stories (
i. GDP was revised downward, massively;
ii. new facts coming to the fore on the Goldman/AIG bailout; and
iii. virtually
every damn piece of, so-called, regulatory reform legislation currently on deck in our government has major loopholes in it which makes the entire concept of financial reform a perverse joke; collectively, in fact, current reform legislation drafts provide Wall Street with
more independence from oversight, not less) are playing out, concurrently today, and collectively they represent even greater, underlying travesties about our country's economy than we may have realized...at least until now.
Q3 '09 GDP GROWTH HAS BEEN REVISED SIGNIFICANTLY DOWNWARD
GDP Q3 '09 Downward Revision: This morning, the Bureau of Economic Analysis just massively revised our Q3 '09 Gross Domestic Product numbers downward from +3.5% to +2.8%. Here's the abbreviated story from Calculated Risk: "GDP Revised Down to 2.8%." Upon closer look, this has somewhat devastating implications, once one understands that when GDP drops much below 3%, for all intents and purposes, net new job creation (i.e.: increases in overall employment) becomes virtually impossible, unless jobs are initiated directly via our government. (NOTE: Some of our more orthodox-thinking economists like to reference "Okun's Law"--which provides us with a direct and quite "neat" correlation between GDP and employment--but,in fact, many view Okun's Law as more of a concept than a law. And, others, such as Brad DeLong, tell us Okun's Law is "broken." Then again, when the very concept of how we now calculate G.D.P. is totally obliterated by mainstream economic thought, as has been the case in recent weeks--I posted a diary about this issue, about two weeks ago, and it's linked right here: "Breaking: BLS, Fed, BEA, et al 'Overstate Strength of Economy'"--the whole thing kind of smacks of a twisted form of cognitive dissonace which, by definition, is already "twisted." All in all, it just proves that economics is as much of an art as it is a science, IMHO.)
# # #
NEW, DAMNING FACTS EMERGE REGARDING GOLDMAN/AIG BAILOUT DEAL
Some New, Inconvenient Truths Emerge For Goldman Sachs: Approximately 12-14 hours ago, a fascinating story appeared over at the highly-regarded Naked Capitalism blog, which puts many pieces of the Goldman/AIG scam together for the first time, essentially, painting a very "tidy" picture of just how outrageously biased the realities of the AIG bailout were/are, even now, specifically as they ended up relating to the benefit of Goldman Sachs. If hindsight is 20/20, this--read about it right here: --Goldman/AIG Conspiracy Theories: There's a Reason They Won't Go Away"--also demonstrates to the American public that we were all blinded by the flashing red "danger" lights of the so-called Wall Street "emergency," at the time, too. At the end of the day, and in many practical ways not brought to our attention until now, the public good was thrown under the bus in ways which will inflict pain upon society for many years to come.
Again, summing it all up, the question remains: Why the hell did our government elect to bailout AIG--an insurance company--while simultaneously allowing most of the monoline insurers go belly up? And, for those of you who don't know what a monoline insurer is, it's basically an insurance company that insures municipal, state and federal agency bonds (debt). So, as a result of these monoline insurers tanking over the past year, cities, states and federal agencies are now paying billions of dollars more to issue public debt--and that's in the select, few instances where they're enabled to actually sell it to the public, since the market for it has nosedived significantly since last Fall, too!
The real answers WILL blow you away. (If you read no OTHER link in this diary, please read the story linked two paragraphs above.) In the meantime, here's an excerpt...
Goldman/AIG Conspiracy Theories: There's a Reason They Won't Go Away
Tuesday, November 24, 2009
Yves Smith
Naked Capitalism
Note: this post is primarily by Thomas Adams, at Paykin Krieg and Adams, LLP, and a former managing director at Ambac and FGIC, but this is a big piece of some puzzles he, some other experts who prefer to remain anonymous, and I have been pushing on for several months.
...I hate to get sucked into the vampire squid line of thinking about Goldman, but the only explanation i can think of for why AIG got rescued and the monolines did not is because Goldman had significant exposure to AIG and did not have exposure to the monolines.
When it became clear that AIG could face bankruptcy, Goldman's plan to profit by shorting ABS CDOs was threatened. While they had the collateral posted, thanks to the downgrades, this collateral could be tied up or lost if AIG went bankrupt. This was a real crisis for Goldman - they thought they had outsmarted the subprime market with their ABS CDOs and outsmarted all of the other banks by getting collateral posting from AIG when they got downgraded. But if AIG went away, this strategy would have blown up and cost Goldman billions.
All of this is essentially factual and based, for the most part, on public information.
As a matter of speculation, i believe that Goldman and their helpers deliberately pumped up the media with the threats that the subprime market posed in order to hasten the collapse of the subprime market. this allowed them to realize their gains sooner from shorting ABS CDOs - they had become impatient waiting for it to blow up.
In addition, I believe that Goldman and their helpers - including their many connections with the White House and the Fed - pumped up concerns about the systemic risk that the market was facing from a Lehman and AIG failure, so that they could force the government to step in and bail out AIG. This would also explain why Lehman was not bailed out. Lehman didn't really matter to Goldman. But the fear created by Lehman's failure served as a good excuse for why they should rescue AIG.
I have been wondering why the sub-prime market blow up led to such a massive crisis when subprime and structured finance had experienced big problems before without the issue of systemic risk and financial market collapse. Certainly, the ABS CDOs were toxic and caused big holes, but not so big that it couldn't be addressed by an RTC type of clearing system. Various analyst reports of the bad subprime deals (and ABS CDOs) makes it pretty clear that the 2006-2007 vintages were the worst and will probably only create about $500-700 million of aggregate losses. Terrible, but not insurmountable.
This leads me to conclude that the bailout was prompted by fear mongering and deliberate strategies and manipulation on the part of Goldman and a few select others, to make sure that AIG would be bailed out to protect their trades in shorting ABS CDOs....
Here's the most recent of many, many diaries that I've posted about this (for well over a year, in fact): "Goldman's Eviscerated In NYT; Admits Geithner's 'AIGenerosity'."
# # #
REGULATORY REFORM
The Legislative Branch's Regulatory Reform Effort, As We Know Its Definition, Is Nothing More Than A Perverse Joke On U.S. Taxpayers: Just prior to the appearance of the Goldman/AIG revelations appearing on Naked Capitalism last night, around 18 hours ago, another story concerning Rep. Paul Kanjorski's whorish behavior with Wall Street was also posted by one of my favorite economic pundits, Ed Harrison (the publisher of CreditWritedowns.com), who frequently takes over master of ceremonies duties for Yves Smith at Naked Capitalism, as well. In: "The Kanjorski Amendment Trojan Horse and Prompt Corrective Action," we learn of yet another massive, regulatory loophole hidden in the latest too-big-to-fail legislation that was falsely advertised as being pro-taxpayer by the House Financial Services Committee, approximately two weeks ago. To make a long story short, banks--including too-big-to-fail banks--may override the concept of "Prompt Corrective Action," simply by suing the government! Bill Moyers had a very interesting interview with my favorite "Prompt Corrective Action" expert, William K. Black, on this very matter, this past April. It's all right here: "William K. Black on The Prompt Corrective Action Law." As you'll learn by reading Harrison's post from last night, the entire concept of invoking that is thrown under the bus in Kanjorski's iteration of the bill!
'
Like virtually every other piece of bulls**t, so-called regulatory "reform" legislation winding its way through the House, except for the Paul-Grayson, "Audit-the-Fed" (H.R. 1207) legislation--which is nowhere near a done deal, btw--the truths are becoming self-evident that practically ALL financial regulatory reform legislation that's currently being released from Barney Frank's committee is actually making regulatory matters worse for the general public, not better. (Yes, it's pretty incredible--even for me--to be writing this previous sentence as fact, but, once you take the time to look at the facts, it is so!) Respected progressive economist Dean Baker weighed in on these outrageous realities over The Guardian, last night, in: "Vampire banks rise again."
Vampire banks rise again
Dean Baker
guardian.co.uk, Monday 23 November 2009 19.00 GMT
Wall Street will never be fair while industry lobbyists wander the halls of Congress, sucking the life out of financial reform...
--SNIP--
...the halls of Congress are infested with financial industry lobbyists. As a result, the bills being put forward are written like the adjustable rate subprime mortgages that helped get us into this mess. The wording often leads to bills that do the exact opposite of the stated meaning.
For example, the wording of a section of the house financial services committee bill that was intended to regulate derivatives trading included an "end user" exemption. This exemption would have given Enron a green light to carry on its shady dealings in over-the-counter transactions out of sight of any regulators.
After a bill to audit the Federal Reserve Board garnered 311 co-sponsors in the house, the financial industry's lobbyists got a member to put up an alternative amendment for an audit. The only problem was that this alternative "audit" bill would essentially have prevented an audit.
In another coup, there was an amendment put forward by Representative Paul Kanjorski that would allow the Fed to break up banks that pose a danger to the financial system. This garnered support from many who understood the bill to require the breakup of JP Morgan, Citigroup, and other "too big to fail" institutions.
But, this interpretation wrongly assumed that the amendment actually had some meaning. The authors of this amendment contend that no breakup of these giants is required because they do not pose a threat to the financial system at this moment. This assertion is of course absurd, because at a point where the collapse of one of these institutions does pose a threat to the financial system it will not be of any benefit to break them up.
And, if what we know about the state of regulatory reform in our legislative branch doesn't frost your butt, what's going on right now behind closed doors at various government "oversight" agencies directly demonstrates just how truly pwned we are right now. A STUNNING example of these outrages was covered in my diary from yesterday, entitled: "Wherein The SEC Opens Wall Street's "Big Oil Casino."
You see, for all the travesties we're witnessing playing out in public and semi-public arenas, the real nightmares relate to, what Harry Truman referred to as: "The history we don't know."
There's really no other way to put this other than to just come out with it: Everywhere you look, right now, Main Street is being strip-mined. Period. Today, moreso than at any point in our history. I'm sure history will look back at these most recent travesties and wonder: "What the hell was the American public thinking that they could let these travesties occur underneath their very noses?"
What are your thoughts?