A common enemy

[Political Waves]

Lets start with a quote for the day:

“I am thrilled to be joining the great talent and management team at Fox News. It’s wonderful to be part of a place that so values fair and balanced news.“

~ Sarah Palin

Well, some things are just DESTINED, ya know?

Unemployment is hitting a hard and stable 10 + % but we can double that when we include the chronically unemployed who have given up trying, those who are picking up odd jobs or working several small ones to put dinner on the table and those who have turned to petty crime to keep things going -- none of which is tracked. 1 in 5 working-age American men are unemployed -- 1 in 50 have no other income than food stamps. Actual unemployment is about 20% ... 19.1 or so, according to Krugman.

These reads are mostly about Tim Geithner and his coziness with AIG ... a man caught between the crosshairs of an era change ... but Bernanke is right behind him. The Fed is trying to keep the lid on its insider maneuvering so the public won't know how bad it is; Bloomberg initiated a lawsuit long ago, and now it will go to a three-judge panel to decide. Meanwhile, we're poised on release of Wall Street bonus announcements that can only be insult, injury and HOPEFULLY perceived as an attack on the sensibilities of the American people; I'll approve a psychic jolt if it will wake a few more up to the plutocracy that bats us around like a handball.

While the rest of us sputter along, scrambling to keep things together, the jobless recovery went swimmingly for financial services -- the moneychangers still appear to be teflon coated, but that can't remain the standard for much longer. Arianna Huffington has been pushing a movement ... Move Your Money ... that is finding its feet now, asking us why we're staying with the big banks when smaller ones, and credit unions, would give us more accountability and services. Our little pittance might not seem like much, but it's the core funding for the big banks ... if enough of us transfer our accounts to those more trustworthy, the whole of the Big Houses begin to lose power. Think about it, if it's doable for you ... and go here if you want further info.

The common enemy of all Americans, no matter political affiliation, are those who would drain our good from us and deny us our individual rights and protections. You can decide for yourself who they are, but I'd think those who laugh all the way to their off-shore accounts might be first on your list -- and the Federal Reserve is the Old Boyz club that promotes it.

A short collection of reads today, the last one is by Frank Rich.

Jude



Backscratchers
digby, Hullabaloo
1/08/2010
http://digbysblog.blogspot.com/2010/01/backscratchers-by-digby-big-story-of.html

The big story of this week is this bombshell that Tim Geithner colluded with AIG when he was chairman of the NY Fed. Spitzer, Black and Portnoy are calling again for full release of AIG emails over the past decade and it's very hard to see any good reason why it shouldn't happen:

In a December New York Times op-ed, we called for the full public release of AIG email messages, internal accounting documents and financial models generated in the last decade. Today, a Bloomberg story revealed that under Timothy Geithner's leadership, the Federal Reserve Bank of New York told AIG to withhold details from the public about its payments to banks during the crisis. This information was discovered when emails between the company and the Fed were requested by representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

[...]

The emails today detail the efforts of the Fed to suppress the disclosure of payments made to banks such as Goldman, Sachs Group for reimbursement of their credit-default swap exposure. When the Treasury Department stepped in, AIG had at least $440 billion in credit-default swaps outstanding. The Fed, led by Tim Geithner, paid Goldman, Sachs Group and other banks 100 cents on the dollar for these instruments rather than negotiating a lower rate closer to the actual value, (estimated by some to have been as little as 20 cents). In testimony to the Congressional Oversight Panel, Tim Geithner insisted it was necessary to make these payments in full, arguing that even a small downward negotiation would prove catastrophic to the financial sector. Elizabeth Warren, head of the oversight panel, has repeatedly challenged this assertion.

Right. Goldman had to be made "whole," come what may. Evidently, even this hadn't fully protected them from some exposure:

In late October 2007, as the financial markets were starting to come unglued, a Goldman Sachs trader, Jonathan M. Egol, received very good news. At 37, he was named a managing director at the firm.

Mr. Egol, a Princeton graduate, had risen to prominence inside the bank by creating mortgage-related securities, named Abacus, that were at first intended to protect Goldman from investment losses if the housing market collapsed. As the market soured, Goldman created even more of these securities, enabling it to pocket huge profits.

Goldman's own clients who bought them, however, were less fortunate.

Pension funds and insurance companies lost billions of dollars on securities that they believed were solid investments, according to former Goldman employees with direct knowledge of the deals who asked not to be identified because they have confidentiality agreements with the firm.

Did Geithner know about this at the time he told everyone not to disclose, do you suppose?

This isn't the only case where Treasury allowed AIG to withhold important information:

There was A.I.G.'s behind-closed-doors argument against Feinberg's directive to pay its top people in large part with A.I.G. stock. The company's reasoning? That the stock - trading briskly at the time at around $40 on the New York Stock Exchange - was actually worthless. Yet Feinberg would be pushed by staff at Treasury and officials of the Federal Reserve Bank to accept that argument and others in order to keep the captains of these broken companies from quitting.

Feinberg's push for long-term accountability was met with what Feinberg calls "intense pressure" from officials at the Treasury Department and from the Federal Reserve Bank of New York, which had provided most of the A.I.G. bailout, to make accommodations for the firms whose perceived extravagance had created his job in the first place. First, there were those cash retention bonuses, which 8 of the 12 A.I.G. executives now under Feinberg's
purview received in 2009. Feinberg pushed to have the executives return the money and replace it with salarized stock. They all refused, even those who had pledged to give the bonuses back altogether. Among those who insisted on keeping the cash was David Herzog, A.I.G.'s chief financial officer, whose bonus was $1.5 million. He and the others told Feinberg, through A.I.G.'s vice chairman Anastasia Kelly, that if they didn't get to keep that bonus, plus get additional bonuses for work in 2009, they would leave, which would grievously imperil the company. No one at A.I.G. seemed to be embarrassed to argue that the chief financial officer of Wall Street's Titanic was irreplaceable.

Now that the emails have been revealed, you can certainly see why Treasury might have been so anxious to keep those AIG Big Boyz happy -- and it didn't have anything to do with how valuable they were.

This is a now a real scandal and it's getting bigger. Obama needs to cut Geithner loose, call for a full investigation and end this charade once and for all. It's no longer just a policy matter --- this is now a very dangerous political problem. ++


Eliot Spitzer Weighs In On Geithner And AIG-New York Fed Emails (VIDEO)
HuffPo
01-9-10
http://www.huffingtonpost.com/2010/01/09/eliot-spitzer-weighs-in-o_n_417218.html

Former New York Governor Eliot Spitzer made an appearance on The Ed Show Friday. Spitzer weighed in on the scandal surrounding emails from the New York Fed to AIG, telling the bailed insurer to stay quiet about overpaying Wall Street firms with taxpayer money. The emails were sent when current Treasury Secretary Tim Geithner was in charge of the agency.

Headlines about the emails have put the White House on defense. Press Secretary Robert Gibbs defended Geithner Friday, saying that the Treasury secretary was "not involved in any of these emails" and that "these decisions did not raise to his level at the Fed."

Spitzer told Ed that he was skeptical of Gibbs' certainty regarding Geithner's role because the emails have not been released. Neither the House, nor the Senate banking committees have subpoenaed AIG for the messages. Both, according to Spitzer, should be demanding all the emails from AIG, a company that is now majority-owned (77.9 percent) by the U.S. government and in turn, the American people.

Spitzer explained why it's so important for the emails to be released:

"What many of us have been saying for quite some time right now is that AIG is the center of the web of the entire economic cataclysm on Wall Street and the only way to understand what happened is to go through those emails. The amazing thing Ed, is we own the company. Taxpayers own the company. it is our right to understand what is being done with our money, what happened, what led to this cataclysm and only from that will we understand what did Tim Geithner do. The New York Fed was instrumental in creating the structure that failed. Tim Geithner was the president of the fed. You go back to who chose him to be there it was the head of the leaders of the New York investment banks that have benefited from the bailout.... Let's not jump to conclusions. But I can tell you... one thing with absolute certainty. Until we get every one of those emails. We Will not know..."

Open the link to watch: ++


Wall Street Reform: Traditional Foes Join Forces To Take On Bankers
Ryan Grim, HuffPo
01- 8-10
http://www.huffingtonpost.com/2010/01/08/wall-street-reform-tradit_n_416612.html

On Thursday evening, a roomful of people more accustomed to fighting each other met to unite against a common enemy: Wall Street.

The forces that are gathering against the bankers include energy companies, airlines, truckers, farmers and other end users of derivatives, along with unions, consumer advocates and a host of progressive organizations.

"I can't think of anything where such a diverse group has come together. Some of these organizations don't see eye to eye on other issues," said Jim Collura, a lobbyist with the New England Fuel Institute and a lead organizer behind the Commodity Markets Oversight Coalition (CMOC), which includes end users of derivatives such as corn or gas futures. The businesses rely on futures contracts to hedge against the risk of price spikes or declines.

A senior administration official who addressed the coalition partners at the meeting would have been considered just as unlikely a bedfellow a year ago. Gary Gensler, now the chairman of the Commodity Futures Trading Commission (CFTC), spent nine years with Goldman Sachs and, as a Treasury official in the '90s, pushed the type of deregulation that contributed to wild speculation in derivatives and helped bring about the financial collapse. For those sins, Sen. Bernie Sanders (I-Vt.) put a hold on his nomination to the CFTC. He eventually let him move through, convinced that Gensler had seen the error of his ways.

Close observers of the fight to reform Wall Street say that Sanders's judgment has been proven wise and that Gensler has been one of the strongest advocates for reform within an administration often seen as too sympathetic to the financial services industry.

"The meeting went fantastic," said Collura, who had been worried that the differences between the groups would prove irreconcilable. "I think everybody expected little and walked away with a lot."

Graham Steele, policy counsel with Public Citizen's Congress Watch, said that Gensler offered the groups encouragement and the full support of the administration.

Some coalition members pressed Gensler on the administration's commitment to reform, given that Treasury Secretary Tim Geithner has pushed for a wide range of exemptions that could allow speculators to continue to trade in the dark rather than on an exchange similar to the New York Stock Exchange.

Story continues below  "The White House believes in reform," Gensler told the group, according to Steele, though there were lingering doubts among some participants. "They've been arguing for almost as many exemptions as industry," Steele said of the Treasury Department.

Deputy Treasury Secretary Neal Wolin, in a statement to HuffPost, said the administration supports moving over-the-counter (OTC) derivatives to central "clearing and trading platforms." What defines such a platform will be subject to debate.

"The Administration has proposed, and is committed to achieving, comprehensive and tough regulation of all OTC derivatives markets. Strengthening the financial system requires a migration of OTC derivative transactions to central clearing and trading platforms, improved transparency for all OTC derivative transactions, strong regulation of all OTC derivative dealers and major players, and improved enforcement tools to prevent abuses in these markets," said Wolin.

Gensler, meanwhile, exhibited little sympathy for the financial industry's arguments against reform. Wall Street traders insist that if derivatives are regulated too tightly, or if firms are limited in the size of the positions they can take, then capital will simply move offshore and cost American jobs.

Gensler is ready to call their bluff. "He thinks they'll try to evade regulations in another way," said Steele. Indeed, every reform proposed for Wall Street -- or for London, for that matter -- over the last century sparked warnings that business will go elsewhere. But, overall, the threats never end up materializing because capital isn't an abstraction that floats as freely as the wind -- as Wall Street portrays it -- but is rather the resource at the foundation of real businesses that have office space, fax machines, gym memberships and employees with children in private school.

"They're going to be uprooting everything? It just doesn't make sense," says Steele, echoing Gensler. "They always threaten to leave and they never do."

What they will do instead, Gensler told the group, is much more logical:

Look for ways to water down the legislation or root around the regulations.

Wall Street is furiously engaged in both steps now. The formation of the reform coalition is a direct effort to challenge derivatives dealers and Wall Street traders who have marshaled an army of little guys to lobby Congress against reforming the way that derivatives are traded. The traders like to use these surrogates because the financial crisis has cost them their esteem in the eyes of the public.

Meanwhile, hedge funds are preparing for regulation that would curb speculation. Several end users in the meeting with Gensler said that they'd seen hedge funds and other investors begin to purchase the physical product that underlies the derivatives. In other words, hedge funds that want to speculate on corn futures are going out and actually buying corn, as well.
Then, when the regulations are in effect, they can claim to be commercial end users.

Collura said the group is a bit flummoxed at how to respond to such efforts. It shows, he said, how much surplus profit exists in speculation that traders are willing to buy physical commodities they have no use for.

The lack of transparency in the market, however, primarily benefits Wall Street dealers, since only they know the real difference between the bid and ask prices. "These rules would obviously impact the largest banks and brokers that benefit from the current market setup," reads a fall Citigroup report on the proposed regulations. "The shift to exchanges is expected to reduce profitability as a result of more market transparency... Exchange trading will likely reduce bid/ask spreads and require dealers to share economics with exchanges."

Collura said that the first step the new coalition plans to take will be to walk the halls of Congress to let senators know that the end users trotted out by the banks don't represent the interests of all small businesses. "There are some people who ware skeptical about our chances to get a strong bill out of the Senate. The new commitment to make a coordinated effort has given us some hope," said Collura.

The new coalition is essentially made up of the end user group CMOC and Americans for Financial Reform, a coalition of unions, consumer advocates and progressive organizations.

The group is outgunned by Wall Street, but ready for the fight, Collura said. "We can't match them with dollars," he said. "But I think we can and will reach out to the American public, because I think the American public realizes that Wall Street interests are basically negotiating the terms of their own medicine. There could be a huge backlash and the president and Democrats in Congress don't want that to happen." ++


The Other Plot to Wreck America
FRANK RICH, NYT
January 9, 2010
http://www.nytimes.com/2010/01/10/opinion/10rich.html

THERE may not be a person in America without a strong opinion about what coulda, shoulda been done to prevent the underwear bomber from boarding that Christmas flight to Detroit. In the years since 9/11, we’ve all become counterterrorists. But in the 16 months since that other calamity in downtown New York — the crash precipitated by the 9/15 failure of Lehman Brothers — most of us are still ignorant about what Warren Buffett called the “financial weapons of mass destruction” that wrecked our economy. Fluent as we are in Al Qaeda and body scanners, when it comes to synthetic C.D.O.’s and credit-default swaps, not so much.

What we don’t know will hurt us, and quite possibly on a more devastating scale than any Qaeda attack. Americans must be told the full story of how Wall Street gamed and inflated the housing bubble, made out like bandits, and then left millions of households in ruin. Without that reckoning, there will be no public clamor for serious reform of a financial system that was as cunningly breached as airline security at the Amsterdam airport. And without reform, another massive attack on our economic security is guaranteed. Now that it can count on government bailouts, Wall Street has more incentive than ever to pump up its risks — secure that it can keep the bonanzas while we get stuck with the losses.

The window for change is rapidly closing. Health care, Afghanistan and the terrorism panic may have exhausted Washington’s already limited capacity for heavy lifting, especially in an election year. The White House’s chief economic hand, Lawrence Summers, has repeatedly announced that “everybody agrees that the recession is over” — which is technically true from an economist’s perspective and certainly true on Wall Street, where bailed-out banks are reporting record profits and bonuses. The contrary voices of Americans who have lost pay, jobs, homes and savings are either patronized or drowned out entirely by a political system where the banking lobby rules in both parties and the revolving door between finance and government never stops spinning.

It’s against this backdrop that this week’s long-awaited initial public hearings of the Financial Crisis Inquiry Commission are so critical. This is the bipartisan panel that Congress mandated last spring to investigate the still murky story of what happened in the meltdown. Phil Angelides, the former California treasurer who is the inquiry’s chairman, told me in interviews late last year that he has been busy deploying a tough investigative staff and will not allow the proceedings to devolve into a typical blue-ribbon Beltway exercise in toothless bloviation.
He wants to examine the financial sector’s “greed, stupidity, hubris and outright corruption” — from traders on the ground to the board room. “It’s important that we deliver new information,” he said. “We can’t just rehash what we’ve known to date.” He understands that if he fails to make news or to tell the story in a way that is comprehensible and compelling enough to arouse Americans to demand action, Wall Street and Washington will both keep moving on, unchallenged and unchastened.

Angelides gets it. But he has a tough act to follow: Ferdinand Pecora, the legendary prosecutor who served as chief counsel to the Senate committee that investigated the 1929 crash as F.D.R. took office. Pecora was a master of detail and drama. He riveted America even without the aid of television. His investigation led to indictments, jail sentences and, ultimately, key New Deal reforms — the creation of the Securities and Exchange Commission and the Glass-Steagall Act, designed to prevent the formation of banks too big to fail.

As it happened, a major Pecora target was the chief executive of National City Bank, the institution that would grow up to be Citigroup. Among other transgressions, National City had repackaged bad Latin American debt as new securities that it then sold to easily suckered investors during the frenzied 1920s boom. Once disaster struck, the bank’s executives helped themselves to millions of dollars in interest-free loans. Yet their own employees had to keep ponying up salary deductions for decimated National City stock purchased at a heady precrash price.

Trade bad Latin American debt for bad mortgage debt, and you have a partial portrait of Citigroup at the height of the housing bubble. The reckless Citi executives of our day may not have given themselves interest-free loans, but they often walked away with the short-term, illusionary profits while their employees were left with shredded jobs and 401(k)’s. Among those Citi executives was Robert Rubin, who, as the Clinton Treasury secretary, helped repeal the last vestiges of Glass-Steagall after years of Wall Street assault. Somewhere Pecora is turning in his grave

Rubin has never apologized, let alone been held accountable. But he’s hardly alone. Even after all the country has gone through, the titans who fueled the bubble are heedless. In last Sunday’s Times, Sandy Weill, the former chief executive who built Citigroup (and recruited Rubin to its ranks), gave a remarkable interview to Katrina Brooker blaming his own hand-picked successor, Charles Prince, for his bank’s implosion. Weill said he preferred to be remembered for his philanthropy. Good luck with that.

Among his causes is Carnegie Hall, where he is chairman of the board. To see how far American capitalism has fallen, contrast Weill with the giant who built Carnegie Hall. Not only is Andrew Carnegie remembered for far more epic and generous philanthropy than Weill’s — some 1,600 public libraries, just for starters — but also for creating a steel empire that actually helped build America’s industrial infrastructure in the late 19th century. At Citi, Weill built little more than a bloated gambling casino. As Paul Volcker, the regrettably powerless chairman of Obama’s Economic Recovery Advisory Board, said recently, there is not “one shred of neutral evidence” that any financial innovation of the past 20 years has led to economic growth. Citi, that “innovative” banking supermarket, destroyed far more wealth than Weill can or will ever give away.

Even now — despite its near-death experience, despite the departures of Weill, Prince and Rubin — Citi remains as imperious as it was before 9/15. Its current chairman, Richard Parsons, was one of three executives (along with Lloyd Blankfein of Goldman Sachs and John Mack of Morgan Stanley) who failed to show up at the mid-December White House meeting where President Obama implored bankers to increase lending. (The trio blamed fog for forcing them to participate by speakerphone, but the weather hadn’t grounded their peers or Amtrak.) Last week, ABC World News was also stiffed by Citi, which refused to answer questions about its latest round of outrageous credit card rate increases and instead e-mailed a statement blaming its customers for “not paying back their loans.” This from a bank that still owes taxpayers $25 billion of its $45 billion handout!

If Citi, among the most egregious of Wall Street reprobates, feels it can get away with business as usual, it’s because it fears no retribution. And it got more good news last week. Now that Chris Dodd is vacating the Senate, his chairmanship of the Banking Committee may fall next year to Tim Johnson of South Dakota, home to Citi’s credit card operation. Johnson was the only Senate Democrat to vote against Congress’s recent bill policing credit card abuses.

Though bad history shows every sign of repeating itself on Wall Street, it will take a near-miracle for Angelides to repeat Pecora’s triumph. Our zoo of financial skullduggery is far more complex, with many more moving pieces, than that of the 1920s. The new inquiry does have subpoena power, but its entire budget, a mere $8 million, doesn’t even match the lobbying expenditures for just three banks (Citi, Morgan Stanley, Bank of America) in the first nine months of 2009. The firms under scrutiny can pay for as many lawyers as they need to stall between now and Dec. 15, deadline day for the commission’s report.

More daunting still is the inquiry’s duty to reach into high places in the public sector as well as the private. The mystery of exactly what happened as TARP fell into place in the fateful fall of 2008 thickens by the day — especially the behind-closed-door machinations surrounding the government rescue of A.I.G. and its counterparties. Last week, a Republican congressman, Darrell Issa of California, released e-mail showing that officials at the New York Fed, then led by Timothy Geithner, pressured A.I.G. to delay disclosing to the S.E.C. and the public the details on the billions of bailout dollars it was funneling to its trading partners. In this backdoor rescue, taxpayers unknowingly awarded banks like Goldman 100 cents on the dollar for their bets on mortgage-backed securities.

Why was our money used to make these high-flying gamblers whole while ordinary Americans received no such beneficence? Nothing less than complete transparency will connect the dots. Among the big-name witnesses that the Angelides commission has called for next week is Goldman’s Blankfein. Geithner, Henry Paulson and Ben Bernanke should be next.

If they all skate away yet again by deflecting blame or mouthing pro forma mea culpas, it will be a sign that this inquiry, like so many other promises of reform since 9/15, is likely to leave Wall Street’s status quo largely intact. That’s the ticking-bomb scenario that truly imperils us all. ++


"I'm asking you to believe. Not just in my ability to bring about real change in Washington ... I'm asking you to believe in yours."
~ Barack Obama

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