Administration Unveils Plan To Buy Worthless Toxic Assets, AIG Bonuses To Be Returned
March 23rd, 2009 - by: danny
Time For A Trial of Wall Street? Shoshanna Zuboff is charging crimes against Humanity by financial firms in Business Week:
“The economic crisis has demonstrated that the banality of evil concealed within a widely accepted business model can put the entire world and its peoples at risk. Shouldn’t those businesses be held accountable to agreed international standards of rights, obligations, and conduct? Shouldn’t the individuals whose actions unleashed such devastating consequences be held accountable to these moral standards?”
This Just In: $50 Million In AIG Bonuses To Be Returned [About one fourth of the $218,000,000!]
GEITHNER UNVEILS TOXIC ASSETS PLAN
OBAMA’S “KATRINA MOMENT?”
SOUTH AFRICA BANS THE DALAI LAMA
Back in Boston. The sun is out and I get to hang out with some old friends. The economic crunch is visible on the streets in the form of shuttered stores and in headlines like this in the Boston Globe:
The Boston Globe | By Rachana Rathi More students get subsidized lunches
The number of Massachusetts families seeking free and reduced-price meals for schoolchildren is rising as economic hardships extend to school lunchrooms. READ FULL STORY HERE
• President Barack Obama on the Federal Budget: Four Principles
During his weekly address to the nation, the president reflects on lessons from his time spent outside Washington this week, which only reinforced the four core principles in his budget.
• First, it must reduce our dependence on dangerous foreign oil and finally put this nation on a path to a clean, renewable energy future.
• Second, this budget must renew our nation’s commitment to a complete and competitive education for every American child.
• Third, we need a budget that makes a serious investment in health care reform – reform that will bring down costs, ensure quality, and guarantee people their choice of doctors and hospitals.
• Finally, this budget must reduce that deficit even further. READ FULL STORY HERE
The big news of the day was the unveiling of Tim Geithner’s plan to buy up toxic assets—a program that is very complicated and questionable in that it rewards the banks that bought up these assets in the first place knowing they were stuffed with subprime loans and other questionable products. [Note to Tim: I have some toxics stuffed in my closet. Please make an offer.]
Neil Irwin and David Cho | The Washington Post explained the long awaited plan:
“The Treasury Department is unveiling details of its plan to try to relieve banks of their most troubled assets, a long-awaited signature piece of the government’s strategy for stabilizing the financial system. Under the plan, the government and private investors will together spend between $500 billion and $1 trillion to buy up real estate-related loans and securities from banks. The hope is that instead of hoarding cash in case those assets continue to lose value, the banks instead will be able to resume lending money once the toxic assets are off their books.” READ FULL STORY HERE
Geithner takes to the op-ed page of The Wall Street Journal to rally support for his three-pronged strategy, which relies significantly on private investment. The New York Times, meanwhile, reports that the government spent the weekend trying to entice private investors, who are wary given the recent backlash over things like executive pay and bonuses. “Some of them have told administration officials that they would participate only if the government guaranteed that it would not set compensation limits on the firms, according to people briefed on the conversations. The executives also expressed worries about whether disclosure and governance rules could be added retroactively to the program by Congress.” READ FULL STORY AT TIMES HERE
NOTE: Oh, big surprise, companies don’t want anyone limiting their “right” to reward themselves. How “innocent” were the banks that gambled on what are now recognized as worthless assets?
Naked Capitalism comments:
John Kay, in “Banks got burned by their own ‘innocent fraud‘,” argues that banks got themselves and the world at large in a heap of trouble via self delusion. Had the bets embodied in their products been presented in simpler terms, they would have recognized that they were bogus and bound to lose money. But the complicated structures blinded them to the fact that they were bound to end in tears.
Kay draws the term “innocent fraud” from John Kenneth Galbraith and describes it as: “the process that systematically benefits one group at the expense of another but generally falls short of outright criminality.”
I have trouble with the construct, and am always amazed how activities, if perpetrated by someone outside by the banking classes, are seen in a different light. The damage wrought by the credit crisis is truly colossal, but the fact that the perps (for the most part) thought the products worked and the benefits were shared makes them “innocent?” I don’t buy that. Criminality is too low a standard for deeming behavior innocent of not. READ FULL STORY HERE
The Eurointelligence blog on why investors like/profit fromThe Geithner Plan:
Global stocks soared after US treasury secretary Tim Geithner announced his $1,000bn package to extricate toxic assets from the balance sheets of debilitated US banks. The dollar was also up against the euro and the yen. But while global equities rallied, many observers were still left sceptical or confused because of the lack of detail in Mr Geithner’s statement.
We found the most succinct description and analysis how the schemes works, and why it is rip-off, coming from Colm McCarthy in the Irish Economy Blog. Essentially the Geithner plans creates a vehicle in which private equity accounts for 3%, public equity for 12%, and the rest is provided as debt by the public sector the (through the Federal Deposit Insurance Corporation, FDIC). McCarthy makes the point that the private guys do the bidding, and they get the debt on such preferential terms (non-recourse lending, interest rates close to T-bills), that they are bound to end up with a profit.
The Administration still does not appear to realize how bad things are getting and how angry people are becoming, as Frank Rich noted in the New York Times:
“A charming visit with Jay Leno won’t fix it. A 90 percent tax on bankers’ bonuses won’t fix it. Firing Timothy Geithner won’t fix it. Unless and until Barack Obama addresses the full depth of Americans’ anger with his full arsenal of policy smarts and political gifts, his presidency and, worse, our economy will be paralyzed. It would be foolish to dismiss as hyperbole the stark warning delivered by Paulette Altmaier of Cupertino, Calif., in a letter to the editor published by The Times last week: “President Obama may not realize it yet, but his Katrina moment has arrived.” READ FULL STORY HERE
And read this:
Administration Underestimating the Depth of the Financial Crisis?
The good news from our historical study of eight centuries of international financial crises is that, so far, they have all ended. And we confidently predict this one will end, too. We are just not quite so sure it will be nearly as soon as the chirpy forecasts coming from policymakers around the globe. The U.S. administration, for example, is now predicting that growth will renew in the latter part of this year and continue at a brisk pace of 4 percent for several years thereafter. Is this a fact-based forecast or wishful thinking? READ FULL STORY HERE
Clash Inside Obama Administration: Take the Steering Wheel out of Geithner’s Hands By Arianna Huffington [note: the statistics she quotes are staggering]
On February 10th, the New York Times reported that there had been a “spirited” battle within the Obama administration over restrictions on executive pay and bonuses, and over attaching stringent conditions to any bailout money given to banks. The clash pitted Tim Geithner, who opposed the restrictions and conditions, against David Axelrod, who favored them. According to the Times, Geithner had “largely prevailed.” In light of what has happened since then, that outcome must now be viewed as a tragic surrender to Geithner, Summers, and the political/Wall Street class — a “victory” that could lead to the unraveling of the president’s entire economic policy.
Maintaining the public trust is always important for a leader, but especially so during hard times. There is a fascinating chapter on Nelson Mandela in Stan Greenberg’s new book, “Dispatches from the War Room,” in which Greenberg writes about how even the revered Mandela suffered a loss of public confidence when change did not come fast enough after he took office. “Don’t assume the current euphoria, even with your high approval rating will carry you through,” Greenberg counsels Obama, stressing the need to try to build up enough trust so that the public will stay with the president until they can actually experience change.
[snip]
Geithner’s Masters of the Universe, the people he still thinks are the ones we should turn to to save the day, are the same people who brought us here. And that is why Geithner either needs to go or keep his job but have his authority stripped and transferred to someone who does not share his Wall Street DNA. Call him or her the “Recovery Czar.” In other words, use any window dressing you want, just take the steering wheel out of Geithner’s hands. It might seem extraordinary to be calling for the resignation or demotion of President Obama’s point man on our financial system. But let me remind you of a few other things that are extraordinary: the government has spent $2.2 trillion and committed another $7.7 trillion to bolster America’s struggling financial system; $7 trillion of shareholders’ wealth was lost in the stock market in 2008; over 4.2 million jobs have been lost in the last 14 months; 2.3 million houses were foreclosed in 2008, with another 121,756 foreclosures last month alone. READ FULL STORY HERE
RELATED: 121,756 x $175,000 average per home price = $21,307,300,000.00! And you ask, what does one TRILLION dollars look like? h/t to MaryEllen Churchill — this is an excellent visual of just how much money a $1,000,000,000,000.00 really is when the numbers are tossed around as if it were a but a sundry few deceased notables. — Dissectrix
The Republicans are closing ranks in opposition to the new Obama budget and big spending plans charging they will bring the system down. The Obamacrats say they will save the economy, get lending going again and put a big smile on the faces of distressed capitalists.
It’s a very complicated deal and reminds me of the Clinton Health care program unveiled by Hillary back in l993 with a maze of health alliances and PowerPoint charts that you needed a PH.D. to understand. That whole edifice was brought down with some simplistic TV ads. That could happen again.
RELATED: • Go back into hiding, GOP begs Dick Cheney
And speaking of the Clintonistas, our Dissectrix, Cherie, dug this little ditty out of the archives, a 1999 New York Times piece announcing new financial reforms that ten years later would be partially blamed for the disaster we are in: A New Financial Era: The Overview; Accord Reached On Lifting Of Depression-Era Barriers Among Financial Industries By Stephen Labaton — Published: Saturday, October 23, 1999
“White House officials withheld final approval of the agreement until aides could see the measure’s language. But the officials indicated tonight that, with broad support from Democrats in Congress, the measure was all but certain to be signed by President Clinton. As such, it will be one of the most significant pieces of legislation to be written by the White House and the 106th Congress, which began its term considering whether to remove Mr. Clinton and has had a bitter relationship ever since.”
”When this potentially historic agreement is finalized,” Mr. Clinton said in a statement, ”it will strengthen the economy and help consumers, communities and businesses across America.”
Treasury Secretary Lawrence H. Summers said in an interview, ”At the end of the 20th century, we will at last be replacing an archaic set of restrictions with a legislative foundation for a 21st-century financial system.” The measure, he added, ”would provide significant benefits to the national economy.”
Mmmmm? Now we know why Prince earlier had sung about 1999.
But life is just a party and parties weren’t meant 2 last
War is all around us, my mind says prepare 2 fight
So if I gotta die, I’m gonna listen 2 my body 2night
Yeah, they say 2000 zero zero party over, oops, out of time!
So 2night I’m gonna party like it’s 1999! (Yeah, yeah)
Its not clear who will end up making the most money – bankers or lawyers:
WaMu holding company sues FDIC over bank seizure
SEATTLE (AP) Washington Mutual’s holding company is suing federal regulators for billions of dollars, saying the firesale of the bank’s assets to JPMorgan Chase violated its rights. The lawsuit was filed Friday in federal court against the Federal Deposit Insurance Corp., which seized the Seattle-based savings and loan in September. It was the largest bank failure in U.S. history. Lawyers for the holding company, Washington Mutual Inc., argue that the bank was worth more than the $1.9 billion JPMorgan paid for it in a deal arranged by the FDIC. The lawsuit argues that if WaMu’s assets had been liquidated prudently, they would have been worth more than that.
Rolling Stone: US Bailing Out Foreign Banks
Why Are We Spending $50 Billion to Bail Out Euro Banks?
Yeah yeah. Fucking bonuses.
But the real news to come out of the latest AIG dustup is that American taxpayers have been ponying up billions through “AIG” to make foreign banks whole, 100 cents on the Euro. AIG finally revealed its list of counter-parties (.pdf) – and it seems that roughly $3006 billion has paid out to Europe’s (+Montreal’s) biggest financial institutions. Sure. This is a global economic crisis. But from the earliest days of TARP there was debate about whether Treasury should be buying up the world’s bad-bet assets. As I recall, the idea of U.S. taxpayers bailing out UBS seemed was a non-starter, politically, at the time. Now we discover that AIG bailout has done just that. By design? It’s a question Hank Paulson and Tim Geithner should be made to answer. Check out the numbers below* and ask yourself: Why haven’t the Europe’s central bankers been asked to put some skin in this AIG game? READ FULL STORY HERE
UPDATE: The HuffingtonPost is reporting that the Fed has been injecting hundreds of billions to foreign central banks, suggesting that Europe’s bankers may be in no position to share in bailout burdens. $51,900,000,000.00 [Fifty One Billion Nine Hundred Million Dollars] listed below:
Deutsche Bank $11.8 billion — Landesbank Baden-Wuerttemberg $100 million — Calyon $2.3 billion — Rabobank $800 million — Société Générale $11.9 billion –The Royal Bank of Scotland $700 million — Deutsche Zentral-Genossenschaftsbank $1.7 billion — Dresdner Bank AG $2.6 billion — UBS $5 billion — Bank of Montreal $1.1 billion — KFW Bankengruppe $500 million — Banco Santander $300 million — Danske $200 million — BNP Paribas $4.9 billion — HSBC $3.5 billion — Dresdner Kleinwort $2.6 billion — ING $1.5 billion — Credit Suisse 400 million.
The Notorious A.I.G. Debate — PR Week reports the media is still digging into the AIG affair: AIG coverage zeroes in on Liddy, Geithner
NEW YORK: Media coverage of American International Group’s (AIG) distribution of $165 million in bonuses focused squarely on its CEO Edward Liddy and Treasury Secretary Timothy Geithner in the 10-day period surrounding the former’s Congressional appearance, according to data gathered by Dow Jones Insight. READ FULL STORY HERE
Hmm. AIG changes moniker to AIU Holdings Ltd. Let’s hope the “new” acronym does not stand for Always Incredibly Unscurpulous Holdings Ltd. Reminiscent of lipstick and pork. — Dissectrix.
Visit msnbc.com for Breaking News, World News, and News about the Economy
ELLEN BROWN: Captured By The Debt Spider
The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin . . . . Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of a pen, they will create enough money to buy it back again. . . . Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in. . . . But, if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit. READ FULL STORY HERE
U.S. Banks Lost $32 BILLION In Fourth Quarter By MARCY GORDON
WASHINGTON (March 20) – Federal regulators now say the nation’s banks lost $32.1 billion in the final quarter of last year, even worse than the $26.2 billion originally reported last month. The Federal Deposit Insurance Corp. said Friday that “significant” revisions it received from banks also lowered the industry’s net income for all of last year to $10.2 billion from $16.1 billion. READ FULL STORY HERE
AND THAT’S NOT ALL
I am sorry but I can’t stop. There are so many financial stories to monitor and cover. Cherie is outdoing me in finding them. Good for her:
• Katrina vanden Heuvel | The Nation — Spitzer for Treasury?
Frank Rich is right. Firing Treasury Secretary Timothy Geithner won’t get us out of the economic disaster we’re in. But at this time of righteous rage, deploying Geithner and Lawrence Summers as the administration’s chief economic messengers displays an astonishing tone-deafness. These are men who, as Rich puts it, ” are too marinated in the insiders’ culture to police it, reform it or own up to their past complicity with it.”
Or as The Nation’s William Greider explains in Sunday’s Washington Post, the anger roiling the nation could “devour his presidency.” Yet Obama “does not seem to grasp that the tone-deaf technocrats are leading him into a dead-end.” READ FULL STORY HERE
RELATED: From the William Greider column referenced above:
Something fundamental has been altered in American politics. Encouraged by Obama’s message of hope, agitated by darkening economic prospects, many people have thrown off sullen passivity and are trying to reclaim their role as citizens. This disturbs the routines of Washington but has great potential for restoring a functioning democracy. Timely intervention by the people could save the country from some truly bad ideas now circulating in Washington and on Wall Street. Ideas that could lead to the creation of a corporate state, legitimized by government and financed by everyone else. Once people understand the concept, expect a lot more outrage.
• Jim Jubak: Fluke? Credit crisis was a heist
Thanks to a complicit Congress, the reins were systematically loosened on the looters of the financial industry. And they’re still at it, looking for new plunder.
It was no accident.
The folks in power in Washington and on Wall Street want to pretend that the current global financial crisis — you know, the one that reduced household net worth in the United States by $11.2 trillion in 2008, according to the Federal Reserve — was an accident caused by some unfortunate confluence of greed and asleep-at-the-switch regulators. What we’re now living through, though, is the result of a conscious, planned looting of the world economy. Its roots stretch back decades. And it wouldn’t have been possible without the contrivances of the bought-and-paid-for folks who sit in Congress. READ FULL STORY HERE
• “Perp Walks Instead of Bonuses”: Veteran Journalist Robert Scheer on AIG Bonuses, the “Backdoor Bailout” and Why Obama Should Fire Geithner, Summers
• Goldman Sachs Could Return Government Aid Within A Month
Any good news these days – not that there is much – seems to come with an asterisk. The market is popping, but, as some bears ask, is it just a setup for another bigger fall?
[snip]
Goldman’s sudden urgency to return the money stems, in part, from the uproar over A.I.G.’s bonuses last week, and the criticism of Goldman over revelations that the firm had been the largest recipient of government money as a counterparty of bets placed with A.I.G. It’s also paying a hefty 5 percent interest payment to taxpayers for that money. [note: wow! "a hefty 5% -- where can I sign up for that hefty interest payment, hank or timmy? HSBC raises my rate from 8.9% to 19.9% due to LIBOR -- dissectrix] READ FULL STORY HERE
• U.S. Stocks Jump, Capping S&P 500′s Best 10-Day Gain Since 1938
March 23 (Bloomberg) — U.S. stocks rallied, capping the market’s steepest two-week gain since 1938, as investors speculated the Obama administration’s plan to rid banks of toxic assets will spur growth and investor Mark Mobius said a new bull market has begun.
Bank of America Corp. and Citigroup Inc. both soared at least 19 percent as the U.S. Treasury said it will finance as much as $1 trillion in purchases of distressed assets. Exxon Mobil Corp. and Chevron Corp. jumped more than 6.7 percent after oil rose to an almost four-month high. The Standard & Poor’s 500 Index extended its rebound from a 12-year closing low on March 9 to 22 percent as all 10 of its main industry groups advanced. READ FULL STORY HERE
• Must See Bank Bailout News: James Galbraith Says Geithner Bank Rescue Plan ‘Is Extremely Dangerous’
• Part II: Geithner, Obama Kowtowing to “Massively Corrupted” Banks, Galbraith Says
BEIJING — China called for the creation of a new currency to eventually replace the dollar as the world’s standard, proposing a sweeping overhaul of global finance that reflects developing nations’ growing unhappiness with the U.S. role in the world economy. READ FULL STORY HERE
A huge Dissectrix h/t to reader Dyippie for the following newsworthy items:
• Dean Baker | A.I.G. Bonuses: Class War in the Media
“The debate over the A.I.G. bonuses is class war in its full naked glory. On the surface, everyone agreed that paying multi-million bonuses to the folks who bankrupted their company and handed the taxpayers a bill for $170 billion ($2,300 for a family of four) was outrageous. The difference is between the angry masses, who actually want to take back the bonuses, and the elites who insist that there is nothing that can be done. In spite of the superior education of the elites, the masses have the much better argument. As a result, the elites have been desperately cooking up excuse after excuse as to why their well-heeled friends at A.I.G. and the bankrupt banks shouldn’t lose their bonuses.” READ FULL STORY HERE
• As Credit Markets Froze, Banks Loaned Millions to Insiders
Stella M. Hopkins, The Charlotte Observer: “Banks nationwide hold $41 billion in loans to directors, top executives and other insiders, a portfolio that experts say should be stripped of secrecy. Insider lending to directors is particularly troublesome because it could cloud the judgment of people charged with protecting shareholders and overseeing bank management, the experts say. At Charlotte-based Bank of America, those loans more than doubled last year, to $624.2 million – the biggest dollar jump in the country. The largest of them likely went to three directors or their companies.” READ FULL STORY HERE
• Tom Engelhardt | Economic Dirty Bomb Goes Off in New York
Tom Engelhardt, TomDispatch.com: “In my neighborhood, back in those fateful September days in 2001, you could hear the sirens, see the jets streak overhead, catch the acrid smell of the towers and everything chemical in them burning, and like the rest of America, watch those apocalyptic-looking scenes of the towers collapsing in clouds of ash and smoke again and again. But if the look then was apocalyptic, the damage, however grim, was limited. This time around there’s no dust, no ash, no acrid smell, no sirens, no jets, and no brave rescuers either. And yet the effect might, sooner or later, be far more apocalyptic and the lives swallowed up far greater. This time, of course, the fanatical extremists were homegrown. Their ‘caves’ were on Wall Street. They hijacked our economy and did their level best to take down our world.” READ FULL STORY HERE
• Obama’s Campaign Army on Road Again
Peter Slevin and Michael Laris, The Washington Post: “As she headed into the morning sunshine to talk up President Obama’s $3.6 trillion budget proposal, Althea Thomas counted herself a citizen and a partisan picking up where she left off Nov. 4, backing the president she helped elect. ‘It’s the change we all voted on,’ said Thomas, one of about 40 volunteers who fanned out from the Democratic Party headquarters here with clipboards, pledge cards and a sense of mission that flowed from their support of Obama when he was a candidate. The Obama administration and the Democratic National Committee opened a new chapter Saturday in their ambitious project to convert the energy from last year’s campaign into a force for legislative reform on health care, climate change, education and taxes.” READ FULL STORY HERE
• Anti-War Protesters March on Pentagon
Donna St. George, The Washington Post: “Thousands of demonstrators marked the sixth anniversary of the war in Iraq with an impassioned protest of the nation’s military policies yesterday, demanding that President Obama bring US troops home. The demonstration was the first in Washington of the Obama presidency, replete with many of the same messages of protests during the Bush era. Placards read ‘War Is Not the Answer,’ ‘Troops Out Now’ and ‘We Need Jobs and Schools, Not War.’ As marchers made their way from the Mall toward the Pentagon and a hub of defense contractors in Crystal City, they chanted: ‘Hey, Obama, yes, we can. Troops out of Afghanistan.’” READ FULL STORY HERE
• Reva Bhalla at Stratfor | Obama’s Diplomatic Offensive and the Reality of Geopolitics
The Obama administration is only one and a half months into the job, but between pressing “reset buttons” with the Russians, reaching out to the Europeans, talking about reconciling with the Taliban, extending invitations to the Iranians and rubbing elbows with the Syrians, this is already one of the most diplomatically active U.S. administrations in quite some time. READ FULL STORY HERE
ANDY BOROWITZ: ULTIMATE COMMENT — Madoff to Help U.S. Sell Bad Assets: Legendary Swindler Pressed into Service
The Obama administration, hoping to find investors to buy $1 trillion worth of so-called “toxic” assets from U.S. financial institutions, has turned to confessed swindler Bernie Madoff to mastermind the sales campaign. While White House officials acknowledged that joining forces with the jail-bound scam artist was likely to raise some eyebrows, privately they are hoping that when it comes to selling bad assets to investors, the “Madoff magic” will carry the day.
“Desperate times call for desperate measures,” White House chief of staff Rahm Emanuel said on CNN last night. “If anyone can convince investors to buy a worthless piece of paper, it’s Bernie Madoff.”
Under the unusual arrangement, Mr. Madoff will be temporarily sprung from his prison cell and permitted to have meetings with prospective investors to sell them on American financial institutions’ $1 trillion worth of bad assets, accompanied by a phalanx of armed guards. “The guards wanted to bring dogs along to chase Madoff if he tries to make a run for it, but we felt that would undercut his credibility with investors,” Mr. Emanuel said.
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About Danny Schechter
Danny Schechter is an Emmy award winning journalist, television producer and independent filmmaker who also writes, blogs and speaks about media issues.
His latest film is PLUNDER The Crime Of Our Time.
Mr. Schechter is NOT the Godfather of Soul.
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