There's a desperation evident in the financial halls of Washington politics, in place of the pleasantries and genteel quiet of the Greenspan years. Treasury Secretary Henry Paulson has all but come unglued in his desperation to cobble together rescue packages that will keep the day of reckoning from being reckoned with.
For their parts, SEC chairman Christopher Cox and Fed chairman Bernanke drum their fingers, sweat and try to oil the troubled waters of Wall Street. Unfortunately, oil is off the map at $140, plus or minus. These three are trying to bail the boat of the last bubble they permitted while the next fraud bubbles up through a rotten hull.
Reagan's rising tide that lifts all boats has turned to a tsunami.
(Neil Irwin, Washington Post, July 8, 2008)
Two top regulators reached a formal agreement to coordinate their oversight of Wall Street yesterday, as the government attempts to build a new system to guard against a meltdown of the financial system.
Leaders of the Federal Reserve and the Securities and Exchange Commission signed a memorandum of understanding that explicitly allows for the two agencies to share information about the inner workings of investment banks. The move formalizes what has been a reality since the rescue of Bear Stearns in March and marks an end to an era in which the two agencies held information close to their vests.
"It requires consultation between the SEC and the Fed in areas that the SEC had thought previously were its exclusive business. But the world has changed," said David Becker, a partner at law firm Cleary, Gottlieb, Steen & Hamilton and former general counsel at the SEC. "This mostly ratifies facts on the ground."
Worrisome stuff from the guardians of the public trust, who seem to be more interested in saving the private bacon. One wonders what public interest is served by bailing out Bear Stearns to the profit of J.P.Morgan Chase. The barest of facts are as follows;
- Bear Stearns was up to its ass in alligators from a feeding frenzy in the sub-prime mortgage market.
- Nothing--absolutely nothing--drove that investment strategy but greed, the avarice of quick bucks gleaned from 'liar-loans,' the freaky collateral of choice.
- The whole fraudulent scheme came apart at its seams when investors worldwide became aware that AAA rated securities were actually junk.
- Matthew Tannin and Ralph R. Cioffi, both former Bear Stearns managers of hedge funds have been arrested and face criminal charges.
- In order to avert a 'panic' (which is what investors call it when they lose a lot of dough), Paulson dealt off the wounded bear by scrubbing its balance-sheet at taxpayer expense and trying to give away its assets to his buddies at a penny on the dollar.
- The company that was valued at $173 per share in January was sold for two bucks a share two months later (investor outcry brought the number to ten bucks, but forgetting the substantial value of the firm, their headquarters alone is worth five times the price). Nice inside deal.
That's what David Becker means when he says that this latest con "mostly ratifies the facts on the ground." The facts are not on the ground. The facts are hidden from view in a shell-game with two primary goals; 1) to keep the fraudulent from bearing the cost of their fraud and, 2) to keep the market afloat until after January 20, 2009.
That happens to be the date George Bush slinks off to Crawford, Texas and leaves this wreckage to a new president and a new Congress, both of whom promise to be Democrat and both of whom will be blamed for much that is yet to come. This is the "what, me worry?' president, an Alfred E. Neuman administration. If only they had stayed the course, kept my tax cuts, bombed Iran (which may still happen) or privatized what is left of government services--all this would not have happened.
There are those, perhaps, who feel I've beaten this horse too hard over the years and yet, averse as I am to animal cruelty, I am more regularly outraged by a investment community that seems to think profit is a given and loss (when and if it comes) is a public responsibility. 'T'aint so, Magee. The Harvard MBAs have not yet overpowered the laws of economics, although they are untiring in their desire to do so.
The Fed chairman is open to taking on formal responsibility for the stability of the financial system, which the Bush administration advocates, but to do so the central bank wants the ability to gather information and order changes in a wide range of financial companies.
Any major overhaul will require changes to the law -- a sprawling and complicated task that is unlikely to happen this year. Yesterday's agreement shows how the agencies involved are trying to find ways to prevent a recurrence of the financial crisis in March using the tools and legal authority they already have.
One way that doesn't seem to be on the federal agenda is sending the crooks to jail. One might begin with mortgage lenders who knowingly (and jokingly) extended 'liar-loans' with a wink and a nod, knowing the bad paper would be disguised as triple-A. Abundant room in the big-house as well for those executives of bond-rating companies who lied for money by misrepresenting the value of the derivatives that carried AAA ratings.
This garbage went 'round the world, bringing down banks and financial institutions in Europe and Asia. Some of them were co-conspirators. All of them were in it for the fast buck. There isn't a single case where due-dilligence was done on a stream of income producing derivative contracts that were handed off as quickly as possible to the next greedy outfit in the chain.
And then, of course, as is the case in investment fraud, the music stopped and those without a chair cried foul and demanded government intervention to save their losses. A Republican president, like Herbert Hoover before him, failed to acknowledge the writing on the wall.
Hell, these high-rollers and their lobbyists have convinced Congress and the president--by the infusion of money--that there is no wall. Somehow, as the country collapses around ordinary citizens' heads, Bernanke, Paulson and Cox have contrived to move the goal-posts. Their mantra is that the investor holds a position above the rest of us, that the failure of an investment bank would portend the end of the world as they know it.
Which indeed it may.
The guys at the top of this pile, who see layoffs, worthless options and reduced bonuses are not likely to lose that house in the Hamptons. What worries them is the end of the game without an end-game. The rest of us are heartsick at the state of American economcs, working longer, working two jobs to send the kids we knew would be able to go to college off to get their own student-jobs to help with tuition. Where did it all go, this prosperity our parents enjoyed? What happened to the family breadwinner on the way to a smaller loaf? What happened to the dad (or mom) who paid the bills and managed on a budget?
More to the point, do those who gambled us into the poorhouse deserve to be rescued by us? Because, in lieu of a cavalry, that's who these rearrangers of our financial furniture would have come to the rescue. When Bernanke sends that message, who is likely to approach investment with anything other than reckless exuberance?
Full speed ahead. Someone else will sweep up the wreckage.
Interesting to note that time and again, the recipe for ending the downturn turns out not to be letting the losers lose, but encouraging the spenders to spend. Bush gives us a one-time tax rebate of our own money ($170 billion).
(MSNBC) Economic analysts generally believe the $168 billion package Bush signed will help prevent the current downturn from ballooning into a crisis. But if the rebates don't spur a consumer spending spree strong enough to cure what ails the economy, Congress is ready to throw more money at the problem. Bush said the measure was "large enough to have an impact."
One has to wonder what education is required to become an 'economic analyst,' when they call the current state of the world economy a 'current downturn.' Trillions lost to fraud and it's a current downturn. The American investor-child is at the checkout, screaming for more candy and our well-oiled and well-bribed representatives in government shove them chocolate.
Anything--anything at all--to get to January 20, 2009 without another disaster on this president's watch.
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Media comment;
It hardly seems normal (or acceptable) to read in separate articles in my morning's Washington Post, that federal facilities right here in our country are running too short-funded to protect themselves. This, while Boeing and Northrop haggle over who is most deserving of a $40 billion contract for refueling planes. Further along in the tanker piece, one must suspend belief to choke down the admission that an end-contract for these planes may well exceed $100 billion.
$100 billion and yet the Federal Protective Service had its budget slashed by--who else?--Homeland Security. These guys (and women) protect nearly 9,000 Federally owned and leased buildings. The FPS used to be part of the GSA (General Services Administration), but that was in the days before this privatizing-crazed administration outsourced everything from V.A. services employees to armed guards and foreign quasi-military thuggery.
Which brings up the question of advocacy in a government that has become so diffused and downright opaque in its character that no one knows who is running the show. Congress writhes in the impotence of no longer even knowing whom to subpoena and is forced instead to bore itself and its constituents in waves of meaningless committee hearings.
When it, tremblingly gets itself together, draws itself to its full height, puffs out its chest and actually serves a summons, it is ignored. Not only ignored, but dismissed without penalty. The list of powerful no-shows is long and infamous, running out the clock in the waning days of a presidency as well as a Congress. In circumstance after circumstance, from terror to torture, from collapsing bridges to a deteriorating National Mall, from contracting theft to congressional enabling, we have allowed our nation and its protections to be quietly slid out from under us.
Alarmingly, distracted as we are by American Idol, there is no advocacy for the deteriorating bureaucracy that runs the nation's business. Bureaucrat has become a dirty word and privatize has taken its place, although it is the hardworking Washington bureaucrat who kept us afloat in the years before Ronald Reagan made of him a laughingstock. Consider what privatization has brought us in the way of
This is what neo-conservatism has wrought. Born of a reactionary response to the '60s counter-culture, conservatism panicked and dropped its pants to the likes of Norman Podhoertz and Irving Kristol, these 'new' conservatives who advocated the ignoring of America in an orgasm of foreign intrigue. Between this disguised liberalization of the old wire-rimmed glasses conservatives and the advent of the Harvard Business School's reverence for quarterly profit, America has steadily tanked.
If you think Barack Obama will be able to pull us out of our fifty year slide into irrelevancy, I wish you well and hope you are right. I will vote for him because he is--above all--an advocate.
Barbara Ehrenreich writes in the Huffington Post; "The Democrats are feeling empowered -- in part -- by the resounding echoes of change that is ringing in their ears." 
We've seen the first act of the play yet to come, titled "Democrats Back in Charge." It's had a bunch of bad 2006 reviews. Spencer Tracy had it right about stage presence; "learn your lines and don't bump into the furniture." 
Pelosi and Reid are terrified, not of impeachment (or the fantasy that it will complicate election 2008), but of their personal roll in the Democratic complicity that an impeachment trial would reveal. Every single step of the way, the Bush administration's murky wreckage of American ideals was approved by Democrats. 
Newt Gingrich and Tom DeLay at least had the guts not to give a shit. They stood there, guns blazing and dressed the theft of American politics as a Contract With America. Had Bush and Cheney not been so heavy-handed, the Gingrich-DeLay legacy would not yet be at risk.
Parse that, baby. Become different (Democrat rather than Republican) without permanently losing former characteristics (power, greed) or essence (the best government money can buy). Justice doesn't happen to be a part of change in this context and we are full-circle, back to the brilliant observation of Pascal that in the absence of justice, strength will suffice. Or the promise of strength, the hope of strength, the vision or the image of strength, when strength itself has proven too costly.
I am uninspired that the very legislators who have pounded together these lobbyist- congressional- military- industrial- pharma- agri- oil complexes (nail by nail, like Jesus on the cross) are the ones upon whom we must rely to tear it all down. Don't ask a theologian to tear down the church.
Barack can't do that, nor can Hillary or John. Only citizens in the streets can do that and they are busy at the moment, lowing like cattle behind the fences government has erected for them. Unless.
You will not be aware of that, because it is not likely you have reason to keep up with international currencies. Within the United States, all seems well. The waters are quiet. Outside America, a financial tsunami has taken place and the dollar is on the brink of collapse. No one wants our currency. No one wants our debt. No one wants much of anything America has chosen to export in the past seven years.
The Washington Post headline is Stocks Surge as Fed Offers A Boost and it’s written by T. M. Tse and Neil Irwin, who are staff writers and may be forgiven their sins. Certainly they are not Steven Pearstein (probably one of the finest business-writers extant today) even though he too is beginning to waver on Fed actions that ‘may prevent a serious meltdown.’
Ben Bernanke has failed miserably at both. I don’t damned doubt a rally was ignited, as Wall Street dodged another bullet and went out to celebrate.
Does anyone ask any questions, or do Tse and Irwin just jot it all down in their notebooks?
Now it gets complicated, but only slightly. In the rest of the world—that strange and romantic, dangerous and chaotic place outside America—the value of the dollar has dropped by half during this administration. Your 
Mostly, it’s been the Chinese. But understand this. A $100 Chinese investment in ten-year U.S. Debt, paid into our Treasury in 2000, is now only worth $50 and there are still two years to go on the loan. Foreign investors are less and less willing to fund us at that kind of loss, especially when they can buy us up at bargain-basement prices—as the Chinese and Dubai princes have been doing.
The peanut again. This time under a shell in an economic shell-game (noun; A swindling sleight-of-hand game; victim guesses which of three shells a peanut is under).
The Fed Chairman, Ben Bernanke, is going to take them off your hands--as collateral--for billions of dollars. You laugh hysterically and put the money under the mattress. This is supposed to make you more confident about buying and holding these mortgage investments, but you’re not fool enough for that, thank you very much. As for freeing up money, that’s safely under your mattress until your heart rate slows down and you venture forth yet again.
Cutting short-term interest rates is inflationary, but somehow printing $1 trillion a year is not. And Bill is right. They hit Bear Stearns exactly in the right spot, that spot that keeps them from going bankrupt as they deserve to do. 
What, me worry? Hey--it’s party time. Does the NATO Alliance extend to bailing out millionaires and billionaires? Unfortunately, Tse and Irwin had only analysts and strategists available for interview. Their analysis was understandably a little on the ‘wasn’t our fault’ side and their strategy leaned heavily on the ‘money under the mattress solution’ before the pension trusts find out their money is under that other shell.
In about a year it will be the 90th anniversary of the establishment of the Weimar Republic, the nickname for post-WWI Germany and a moniker forever connected with the hyper-inflationary economy of Germany. That circumstance lead directly to the democratic election of Adolph Hitler and WWII. 
Ben Bernanke, who is the current chairman of the Fed is hardly a plumber. One can only wish he was. 
Ben Bernanke is going to fill ‘er up on money. He and George Bush and Henry Paulson have connived between them a ‘stimulus package to bolster the economy.’ If you look up ‘bolster,’ one meaning is to support and strengthen and another is to add padding. I leave it to your judgment which definition most closely defines giving each taxpayer $300 to $1,200 of his own money to goose the economy in the sole interests of the above-named public officials' personal friends.
Financial markets have been looted, Ben. Wake up. This is not about families and businesses, this is about pumping up the worthless investments hedge-funds created. It’s about papering-over the hole in the missing billions before their major institutional investors sue them for fraud and send the whole crop of $100 million a year criminals off to Sing Sing.
And the sworn duty of the Fed is to prevent inflation. Don’t cry for me, Argentina.
There is a cure for all this sickness and greed and fraud, but it will not be found in the halls of Congress, the meeting rooms of the Fed or within a new administration, no matter how much ‘change’ is promised. 
