As far as the Obama administration's concerned, these are Summers' last days. Ironically, I'm posting this on the first day of Autumn. It's also a full moon.
It's the harvest; time to reap what's been sown.
TARP Was a $700 Billion Disaster for Everyone But the Banks
The Guardian / By Dean Baker
September 21, 2010
Two years ago, the top honchos at the Fed, Treasury and the Wall Street banks were running around like Chicken Little warning that the world was about to end. This fear mongering, together with a big assist from the elite media (i.e. NPR, the Washington Post, the Wall Street Journal, etc.), earned the banks their $700 billion TARP blank check bailout. This money, along with even more valuable loans and loan guarantees from the Fed and FDIC, enabled them to survive the crisis they had created. As a result, the big banks are bigger and more profitable than ever.
Now, the same crew that tapped our pockets two years ago is eagerly pitching the line that their bailout was good for us. It may be the case the history books are written by the winners, but that doesn't prevent the rest of us from telling the truth...
Baker tells us to look back two years--back when investment house Bear Stearns collapsed, aand Fannie Mae, Freddie Mac and Lehman Brothers "had also gone down." We're also reminded of AIG being placed on life support.
Baker points out the fact that the three remaining primary Wall Street investment houses, Merrill Lynch, Morgan Stanley and Goldman Sachs were all, literally, days away from insolvency (due to investment house "runs," and a crippled derivatives marketplace, currently underway) in mid-September 2008. Two of our nation's three largest banks, Citi and BofA, "were almost certainly insolvent," as well.
"This was when the Wall Street boys made their mad rush for the public trough."
Enter former Goldman Sachs CEO and then-Treasury Secretary Hank Paulson, Federal Reserve Chair Ben Bernanke, and Timothy Geithner, who was the President of the New York Federal Reserve Bank, back then.
The line was that the economy would collapse if Congress did not immediately rescue the banks. They were prepared to make up anything to save the banks in their hour of need. Bernanke was probably caught in the biggest fabrication when he told Congress that the commercial paper market was shutting down.
What we really were not told at the time, as Baker reminds us now, was that the Federal Reserve had both the power and the printing press bandwidth to resolve this matter quite nicely, and entirely on its own. But, our Congress was never really given that option.
The Paulson-Bernanke-Geithner triumvirate instead ran with the meme that the sky was, indeed, falling. Major companies, which relied on the commercial paper markets to meet their day-to-day needs, such as payroll and other typical expenses, were "doomed," if these commercial markets were to imminently shut down, warned the three. Indeed, the whole economy would "grind to a halt."
So, as Baker tells it, Bernanke brought none of this up at the time. Indeed, it wasn't until the weekend after Congress approved the TARP that he would announce the establishment of a special Fed lending facility to buy commercial paper.
And, as I've mentioned it in multiple diaries over the past couple of years, it was already written in stone (here's just one Federal Reserve document from 2004, which explains this: "The Scope of Monetary Policy Actions Authorized Under The Federal Reserve Act," Federal Reserve white paper by David H. Small and James A. Clouse, 7/19/04) that the Fed was legally empowered to do all of this on their own, too.
In fact, the Fed had an emergency plan in place, all along. From Baker, "The notion that we would be sitting in a 21st century economy and reduced to barter payments was an invention of the bank lobby to get the taxpayers' money."
As Baker notes, the concept that taxpayers prevented a second great depression was little more than "...a fairy tale invented by the bank lobby to make the rest of us feel good about having given them our money." Additionally, Baker points out that the idea that the vast majority of the TARP funds were repaid is a total myth, too.
...This is another effort to prey on the public's ignorance. Had it not been for the bailout, most of the major center banks would have been wiped out. This would have destroyed the fortunes of their shareholders, many of their creditors, and their top executives. This would have been a massive redistribution to the rest of society -- their loss is our gain.
--SNIP--
Instead, we have the same Wall Street crew calling the shots, doing business pretty much as they always did. The rest of us are sitting here dealing with wreckage of their recklessness: 9.6 percent unemployment and the loss of much of the middle class's savings in their homes and their retirement accounts. And the lackeys of the Wall Street crew are telling us that we should be thankful that we didn't have a second Great Depression. Maybe we don't have the power to keep the bankers from picking our pockets, but we don't have to believe their lies.
Dovetailing, IMHO, like a nicely-fitting glove with Baker's narrative, here's an opinion piece from the Daily Beast's Michael M. Thomas, which was cross-posted at Naked Capitalism tonight: "Summers Gave Obama Cover."
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(Diarist's Note: Naked Capitalism Publisher Yves Smith has authorized diarist to reprint posts appearing on her blog in their entirety for the benefit of the DKos community.)
Summers Gave Obama Cover
Michael M. Thomas
The Daily Beast (via Naked Capitalism)
Wednesday, September 22, 2010
By Michael M. Thomas, Wall Street veteran, journalist, frequent commentator on Wall Street, and the author of eight novels set in the world of high finance; with a ninth--about the financial crisis and bailout--in progress. Cross posted from The Daily Beast.
Washington is swirling with the usual rumors--the White House's man was pushed! He jumped! But Summers is leaving because he made sure real reform was discussed--but not accomplished.
The rumor that come November, when the mid-term elections are history, Lawrence Summers, administration's quarterback on economic matters, will leave the White House, has been confirmed. The usual presumptions have been put in play: Summers is weary of the job; the president and his men and women feel the need for a new pair of hands under center; the man has done well; the man has done badly. There is no indication that, like Bush II's ill-served first Treasury Secretary, Paul O'Neill, Summers is being canned for speaking truth to power. That is not the man's style, not--let it be said--that there's much evidence that the administration has better than a shaky grasp of the practical truths of American financial and economic life in the Age of Goldman Sachs.
The bottom line is that we can expect the usual judgemental blahblahblah to grow in volume and marginality on the talk-show and Op-Ed circuit as the day calendared by the media for Summers' leave-taking approaches.
Summers saw to it that the talk was talked, but the walk was never walked.
I have no punditical stake in the outcome. I am no admirer of Summers. I don't know the man; I am not an angry alumnus of Harvard rending my crimson garments and keening over the financial and ideological travesties associated with his tenure as President of my alma mater. I have heard him speak once or twice; in both instances I thought myself to be listening to the smartest man in room, certainly in the speaker's opinion. Henry Ford famously observed that history is bunk, which is my view of economics (and economists) generally. Summers is right at the top of the list of America's best-known economists, and therefore, in my eyes at least, is guilty by association.
Oddly enough, none of this bears on my view as to the reasons for Summers' departure. I think he is leaving because he has done what he came to do. I think he was hired to do a job, has done it with all the admirable consistency, duplicity and proficiency that such a job requires, and now both he and his employer agree that all would best be served by Summers' moving on to do the same thing elsewhere. It's a classic American theme: In a troubled town, a gunfighter of reputation is hired by the mayor and his circle to deal with the problem. He does so, hands in his star and rides on, leaving his bailiwick in the condition his patrons wanted. In this instance, the problem dealt with was a bunch of noisy would-be reformers wanting to clean up the place. Think of Summers in the Jack Palance role in "Shane." The question is: will Alan Ladd ever show up?
I think Larry Summers was tasked with making sure the kind of backlash that in 1933 unleashed Ferdinand Pecora on Wall Street didn't happen in 2009. I think Larry Summers was tasked with marginalizing Paul Volcker, who could thus serve the new administration as moral window-dressing without actually causing trouble. I think it was understood from the outset that any meaningful economics program must involve taking Wall Street to the woodshed, and that this must not be allowed to happen. I think Larry Summers, skilled in the ways of the Washington equivalent of Dickens's "Circumlocution Office" (in Little Dorrit), saw to it that it did not.
One of the most famous of modern quotations comes from Lampedusa's The Leopard, when the old prince's fiery nephew Tancredi tells his uncle, "In order for things to stay the same, everything must change." But change is as change does. In our time, where talk is deemed equivalent to action, Tancredi might have said, especially had he been a high-ranking Wall Street executive, "In order for things to remain the same, it is only necessary to talk about change."
As in "I am the Candidate of...."
I think Summers, with a deftness that would be admirable were it not so repellent in its long-term effects, in what it has cost this nation, saw that change was talked about, but not initiated. The talk was talked, but the walk was never walked.
That's what Summers came to do, in my opinion, and that's what he did. If, in November, he actually leaves the White House, he can with pride and justice flaunt a banner that reads "Mission Accomplished." On few mortals is such greatness showered.
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