Frank Rich takes no prisoners in his Sunday NY Times op-ed column (see links and excerpt, below), citing Wall Street regulatory reform outrages, missteps and/or related public faux pas by everyone from Republican Senator Mitch McConnell, to his House counterpart, John Boehner, to Bill Clinton, while even getting a couple of mild digs in at Barack Obama. But, he righteously tops it all off with an extra special evisceration of Goldman-Sachs CEO Lloyd Blankfein. From Rich we read, "...
The truth is that both parties are too often in hock to the financial sector, and both parties bear responsibility for the meltdown."
Meanwhile, Kossack MinistryofTruth reminds us of the truly over-arching question at hand, in his excellent post on the Rec List tonight, "Moyers: 6 Banks Control Wealth = to 60% GNP. Is the U.S. at the Mercy of an Unstoppable Oligarchy?" But, NY Times Pulitzer Prize-winning business columnist Gretchen Morgenson goes a little more granular on the subject this morning, demonstrating just how truly impotent Senator Chris Dodd's financial services bill really is.
Farther down, below, blogger
George Washington adds insult to injury as he enlightens us with a few incredible (downright outrageous, IMHO) stats comparing the behavior of the big, bailed-out banks with the mid-sized and smaller banks that did not receive bailout funds. Lastly, in a Naked Capitalism diary from Saturday, he talks about the inconvenient facts that beg the question:
"Are we becoming a banana republic without the bananas?"
And, yeah, I've been hammering away at all of this here for years, including these posts, just in the past five or six days: here, here, here, and in this diary, from Thursday: "A Glass Half-Full Won't Douse The Oligarchs' Raging Bonfires."
The right side of my brain would really like to think we've finally reached a tipping point, but the left side of my brain keeps searching for tangible results to confirm that.
Fight On, Goldman Sachs!
Op-Ed Columnist
By FRANK RICH
April 25, 2010
...As many have said -- though not many politicians in either party -- something is fundamentally amiss in a financial culture that thrives on "products" that create nothing and produce nothing except new ways to make bigger bets and stack the deck in favor of the house. "At least in an actual casino, the damage is contained to gamblers," wrote the financial journalist Roger Lowenstein in The Times Magazine last month. This catastrophe cost the economy eight million jobs.
--SNIP--
To achieve this overdue reckoning will require action -- by the S.E.C., the Justice Department and any other legal authority that wants to get into the act. That no one at Lehman Brothers has yet been held liable for its Enronesque bookkeeping deceit is appalling. That we still haven't seen the e-mail and documents that would illuminate A.I.G.'s machinations with Goldman and the rest of its counterparties amounts to a cover-up. That investigative journalists have consistently been way ahead of the authorities, the S.E.C. included, in uncovering Wall Street's foul play is a scandal. If this culture remains in place, the whole crisis will have gone to waste.
As a reminder of the unchastened status quo, Blankfein remains the gift that keeps on giving. On Thursday, The Financial Times reported that he had been calling clients to argue that the S.E.C. case against Goldman would ultimately "hurt America." The opposing point of view was presented by Ira Glass on his radio show "This American Life" this month. With reporters from the nonprofit journalistic organization ProPublica, it told the story of another hedge fund, Magnetar, that gamed the housing bubble. Bankers who worked on Magnetar deals walked away with their huge bonuses well before disaster struck -- or, as the program put it, "bankers made money even when they were buying things that eventually blew up the bank." Not to mention the economy. And it was all legal.
Rich closes out his column today with an "audience bonus," a Broadway song commissioned from the co-author of the satirical musical, "Avenue Q." Rich informs us of the title: "Bet Against the American Dream." He closes by explaining that "...it distills a complex financial saga to its essence: Those who shorted the housing market shorted the country. "
The link to it is right HERE.
As Frank Rich calls them out, the NY Times' Gretchen Morgenson reiterates, today, what Nomi Prins and Simon Johnson (and many others, including George Washington, farther down, below) have been screaming about for almost two years: at the end of the day, our elected lawmakers know who's buttering their bread...and, it isn't Main Street...but, every once in awhile, a little lip service comes due...
# # #
Do You Have Any Reforms in Size XL?
By GRETCHEN MORGENSON
New York Times
April 24, 2010
...Financial reform, which had been stumbling along, suddenly got traction...
--SNIP--
...Unfortunately, the leading proposals would do little to cure the epidemic unleashed on American taxpayers by the lords of finance and their bailout partners. The central problem is that neither the Senate nor House bills would chop down big banks to a more manageable and less threatening size. The bills also don't eliminate the prospect of future bailouts of interconnected and powerful companies.
Too big to fail is alive and well, alas. Indeed, several aspects of the legislative proposals sanction and codify the special status conferred on institutions that are seen as systemically important. Instead of reducing the number of behemoth firms assigned this special status, the bills would encourage smaller companies to grow large and dangerous so that they, too, could have a seat at the bailout buffet.
Here's an example of this special treatment: Both bills would establish a specific process to resolve big-bank failures. Smaller institutions, by contrast, would be allowed to go bankrupt without a new resolution scheme...
Morgenson explains how the Senate's current regulatory reform legislation is weighted in favor of the top few, largest banks. She calls the current plan for a resolution authority completely "...unfair; it also sends a pernicious signal to the market about large and intertwined institutions. The message is this: Subject as they will be to a newly codified "resolution authority," these institutions and their investors and lenders can expect to be rescued if they get into trouble."
She reminds us of what pundits such as Prins and Johnson have been talking about since early 2008: the largest banks have many lucrative advantages bestowed upon them by our government with respect to critical matters such as lower borrowing costs, and the truth that they exist in an environment that, should they become imperiled (again), the government will bail them out.
As so many are saying, it's all about the ongoing socialization of Wall Street risk while the status quo does everything in their power to insure that these thieves are allowed to continue to privatize their make-believe profits.
Morgenson concludes...
It is a shame that Congress is moving forward with financial regulations that do not eliminate the heads-bankers-win, tails-taxpayers-lose mentality that has driven most of the bailouts during this sorry episode. Companies that are too mighty to fail must be broken up. And incentives in the nation's regulatory system that reward size with subsidies should not be enshrined into law. They should be eliminated.
# # #
On Friday, over at Zero Hedge, blogger George Washington provided us with a recap of a USA Today story which points out a few brutal statistics as far as comparing the actions of banks that have received significant government support over the past couple of years versus those that have not.
Mega-Banks Which Received Bailouts Slashed Lending More, Gave Higher Bonuses, and Reduced Costs Less Than Banks Which Didn't Get Bailed Out
George Washington
Zero Hedge
Submitted by George Washington on 04/23/2010 18:38 -0500
USA Today points out:
Banks that received federal assistance during the financial crisis reduced lending more aggressively and gave bigger pay raises to employees than institutions that didn't get aid, a USA TODAY/American University review found.
--SNIP--
* Lending fell. The amount of loans outstanding to businesses and individuals fell 9.1% for the 12 months ending Sept. 30, 2009, at banks that participated in TARP compared with a 6.2% drop at banks that didn't.
* Employee pay rose. Average pay at banks getting aid rose 9.4% in the program's first year. By contrast, non-TARP banks increased salaries 1.8%.
* Cost-cutting limited. Banks in TARP cut costs less than those outside the program. Government-aided banks increased branches by 2.7% while non-TARP banks cut branches by 1.2%.
Washington comes to the conclusion that: "...breaking up the too mega-banks will actually increase lending to small businesses and individuals."
Since the top six U.S. banks (see Ministry of Truth's link, near the top of this post for the list), along with European-based firms DeutscheBank and Barclay's control virtually all of the world's derivatives trading, Washington also points out that breaking up the giant banks is necessary to put a saddle on derivatives trading, too.
But, the devastation these Wall Street behemoths have already caused is incomprehensible to many Americans, as Washington expounds upon those truths in a Naked Capitalism post from Saturday...
# # #
(Diarist is authorized by Naked Capitalism Publisher Yves Smith to reprint her blog's posts in their entirety on Daily Kos.)
Guest Post: A Banana Republic With No Bananas
Washington's Blog
Preface: If this essay is too serious or over the top for you, just watch former Wall Streeter Max Keiser and Stacy Herbert's funny coverage of this story, as well as their coverage of Yves' must-read article on Magnetar.
Experts on third world banana republics from the IMF and the Federal Reserve have said the U.S. has become a third world banana republic (and see this and this).
Are they right?
Well, let's look at Wikipedia's description of the four factors which make a country a banana republic.
Profits Privatized and Debts Socialized
The first feature of a banana republic as "A collusion between the overweening state and certain favored monopolistic concerns, whereby the profits can be privatized and the debts socialized."
√ Check.
As I pointed out in November:
Nouriel Roubini writes in a recent essay:
This is a crisis of solvency, not just liquidity, but true deleveraging has not begun yet because the losses of financial institutions have been socialised and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest...
The releveraging of the public sector through its build-up of large fiscal deficits risks crowding out a recovery in private sector spending.
Roubini has previously written:
We're essentially continuing a system where profits are privatized and...losses socialized.
Nassim Nicholas Taleb says the same thing:
After finishing The Black Swan, I realized there was a cancer. The cancer was a huge buildup of risk-taking based on the lack of understanding of reality. The second problem is the hidden risk with new financial products. And the third is the interdependence among financial institutions.
[Interviewer]: But aren't those the very problems we're supposed to be fixing?
NT: They're all still here. Today we still have the same amount of debt, but it belongs to governments. Normally debt would get destroyed and turn to air. Debt is a mistake between lender and borrower, and both should suffer. But the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren. What is the effect? The doctor has shown up and relieved the patient's symptoms - and transformed the tumour into a metastatic tumour. We still have the same disease. We still have too much debt, too many big banks, too much state sponsorship of risk-taking. And now we have six million more Americans who are unemployed - a lot more than that if you count hidden unemployment.
[Interviewer]: Are you saying the U.S. shouldn't have done all those bailouts? What was the alternative?
NT: Blood, sweat and tears. A lot of the growth of the past few years was fake growth from debt. So swallow the losses, be dignified and move on. Suck it up. I gather you're not too impressed with the folks in Washington who are handling this crisis.
Ben Bernanke saved nothing! He shouldn't be allowed in Washington. He's like a doctor who misses the metastatic tumour and says the patient is doing very well.
Nobel prize winning economist Joseph Stiglitz calls it "socialism for the rich". So do many others.
Devalued Paper Currency
The second characteristic of a banana republic is "Devalued paper currency in the international community."
√ Check. Here's a chart of the trade weighted US Dollar from 1973-2009. CLICK HERE FOR CHART.
And here's a bonus chart showing the decline in the dollar's purchasing power from 1913 to 2005: SEE THIS NAKED CAPITALISM POST FOR CHART.
Politicians Use Time in Office to Maximize Their Own Gains
The third characteristic of a banana republic is:
Kleptocracy -- those in positions of influence use their time in office to maximize their own gains, always ensuring that any shortfall is made up by those unfortunates whose daily life involves earning money rather than making it.
√ Check. As I wrote last month:
Summers, Geithner, Bernanke and Congress like things just the way they are.
Of course they do ... they're bought and paid for:
* Lobbyists from the financial industry have paid hundreds of millions to Congress and the Obama administration. They have bought virtually all of the key congress members and senators on committees overseeing finances and banking. The Congress people who receive the most money from lobbyists are the most opposed to regulation. See this, this, this, this, this, this, and this.
* Obama received more donations from Goldman Sachs and the rest of the financial industry than almost anyone else
* Summers and the rest of Obama's economic team have made many millions - even in the first few months of being appointed, or right beforehand - from the financial industry
* Two powerful congressmen said that banks run Congress ...
The chairman of the Department of Economics at George Mason University (Donald J. Boudreaux) says that it is inaccurate to call politicians prostitutes. Specifically, he says that they are more correct to call them "pimps", since they are pimping out the American people to the financial giants ...
Corruption Remains Unchecked, Politicians Are Only for Show
And the fourth characteristic of a banana republic is:
There must be no principle of accountability within the government so that the political corruption by which the banana republic operates is left unchecked. The members of the national legislature will be (a) largely for sale and (b) consulted only for ceremonial and rubber-stamp purposes some time after all the truly important decisions have already been made elsewhere.
√ Check. There's no accountability.
For example, former Vice President of Dallas Federal Reserve, who said that the failure of the government to provide more information about the bailout signals corruption. As ABC writes:
Gerald O'Driscoll, a former vice president at the Federal Reserve Bank of Dallas and a senior fellow at the Cato Institute, a libertarian think tank, said he worried that the failure of the government to provide more information about its rescue spending could signal corruption.
"Nontransparency in government programs is always associated with corruption in other countries, so I don't see why it wouldn't be here," he said.
As I noted in October:
William K. Black - professor of economics and law, and the senior regulator during the S & L crisis - says that that the government's entire strategy now - as during the S&L crisis - is to cover up how bad things are ("the entire strategy is to keep people from getting the facts").
Indeed, as I have previously documented, 7 out of the 8 giant, money center banks went bankrupt in the 1980's during the "Latin American Crisis", and the government's response was to cover up their insolvency.
Black also says:
There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .
Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well.
PhD economist Dean Baker made a similar point, lambasting the Federal Reserve for blowing the bubble, and pointing out that those who caused the disaster are trying to shift the focus as fast as they can:
The current craze in DC policy circles is to create a "systematic risk regulator" to make sure that the country never experiences another economic crisis like the current one. This push is part of a cover-up of what really went wrong and does absolutely nothing to address the underlying problem that led to this financial and economic collapse.
Baker also says:
"Instead of striving to uncover the truth, [Congress] may seek to conceal it" and tell banksters they're free to steal again.
Politicians are for sale.
And Congress made a big show of passing derivatives reform legislation, but actually weakened existing regulations. In fact, the legislation was "probably written by JP Morgan and Goldman Sachs" (two of the biggest derivatives players). In other words, Congress just rubber-stamped decisions which were already made elsewhere.
The same is true with every other piece of financial "reform" legislation which has been passed. See this and this.
It's all for show, folks. Dodd, Frank, Obama and all the other politicians of both parties (with the exception of a handful trying to do the right thing) are "consulted only for ceremonial and rubber-stamp purposes some time after all the truly important decisions [about economic legislation] have already been made elsewhere"
Without the Bananas
Wikipedia gives some additional background on the term "banana republic":
Banana republic is a pejorative term originally used to refer to a country that is politically unstable, dependent on limited agriculture (e.g. bananas), and ruled by a small, self-elected, wealthy, and corrupt clique.
Well, America isn't dependent on limited agriculture like bananas. But just about the only areas of growth are in the military and in giant companies lavished with buckets of cash and special "favors" by Uncle Sugar.
As one commentator succinctly put it, America has become:
A banana republic with no bananas.
# # #
Ledes in today's New York Times, "Goldman E-Mails Cited `Serious' Profit on Mortgages," and early this morning on Bloomberg, "Goldman Clashes With Senate's Levin Ahead of Blankfein Hearing," are about a looming showdown scheduled this week between Goldman-Sachs CEO Lloyd Blankfein, and many of his firm's key players in their mortgage division, when they appear before Senator Carl Levin's Permanent Subcommittee on Investigations. The Times' Louise Story and Sewell Chan closeout the front-page article by reminding us of just how shrewd and calculating Goldman-Sachs is, as a firm, when it comes to navigating our nation's laws...
...Among the lawyers Goldman has hired to deal with the Senate inquiry are Michael D. Bopp, a partner at Gibson, Dunn & Crutcher, and K. Lee Blalack II, a partner at O'Melveny & Myers. Both men once worked as lawyers for the subcommittee...
# # #
Yes, Washington's right, we have no bananas...