“If we ignore history, we are bound to bail it out again.”
That was the opening note of the bipartisan Financial Crisis Inquiry Commission struck today by its chairman, Phil Angelides, the former state treasurer of California.
In an atmosphere that Madame Defarge would have loved, America's bankers are now in the dock of public opinion, which has been boiling over more than a year after Bush and Obama handouts to save them followed by bad behavior that makes the aristocrats of the Ancien Regime look like Robin Hoods.
As they face TV cameras, bailout barons may be in for more than a public flogging. This Commission is "authorized to hold hearings; issue subpoenas either for witness testimony or documents; and refer to the Attorney General or the appropriate state Attorney General any person who may have violated U.S. law in relation to the financial crisis."
But seasoned Washington observers know enough not to expect a parade of tumbrels to the guillotine. The bottom line (as the bankers themselves might put it) is how tough will be the regulations that the White House and Congress, both compromised by their Wall Street ties, will have the guts to impose when the Commission lays out its findings of greed and arrogance that will surprise no one.
Meanwhile, there is catharsis for politicians and public to belabor bankers who are giving themselves huge bonuses while pleading their innocence in creating the smashup that has cost everyone else in the American economy to suffer.
The Commission's work is being compared to that of the Pecora hearings of the 1930s after the stock market crash that led to tighter regulation of Wall Street, including the Glass-Steagall Act, which separated commercial and investment banking but was killed off a decade ago, opening the way to today's mess.
Bringing back Glass-Steagall would be a step in the right direction but, after the Commission's autopsy is finally finished months from now, that may seem like only a beginning of what needs to be done to rein in these Marie Antoinettes, who are still feasting away as the crowds gather at the Bastille.
If the Tea Party people want to vent their anger, they should take a good look at what politicians of both parties are willing to do about this bunch.
Update: An informed verdict on the bankers' first day from Paul Krugman: "Well, if you were hoping for a Perry Mason moment--a scene in which the witness blurts out: 'Yes! I admit it! I did it! And I’m glad!'--the hearing was disappointing. What you got, instead, was witnesses blurting out: 'Yes! I admit it! I’m clueless!'...
After hearing the heads of JPMorgan Chase and Goldman Sachs claim that the disaster was unavoidable, like a hurricane, "the commission’s chairman, was not amused: The financial crisis, he declared, wasn’t an act of God; it resulted from 'acts of men and women.'...
"Do the bankers really not understand what happened, or are they just talking their self-interest? No matter. As I said, the important thing looking forward is to stop listening to financiers about financial reform."
Showing posts with label bank bailouts. Show all posts
Showing posts with label bank bailouts. Show all posts
Wednesday, January 13, 2010
Wednesday, May 20, 2009
Profits Inevitable As Death and Taxes
Banks getting taxpayer bailouts are also cashing in on the demise of people who work for them or once did.
Today's Wall Street Journal has a tutorial explaining how banks are holding $122.3 billion in life insurance on workers and retirees with themselves as beneficiaries in order to escape taxes, inflate their earnings and to fund bonuses and pension benefits:
"Though not improper, the practice is similar to what is known as 'janitors insurance,' an insurance-on-employees technique that has long been controversial. Critics say the banks' insurance contracts are a way for companies to create tax breaks for funding executive pensions...
"Companies don't use the policies as piggy banks to pay for compensation and benefits. Rather, they benefit from keeping the money in the contracts."
Gains on investments are not only tax free but reported as income each quarter to offset interest on deferred pay owed to executives.
According to the Journal, banks have nearly doubled the amounts of such insurance in the past four years. Bank of America, which has taken $52.5 billion from taxpayers so far, holds an estimated $17.3 billion of such investments in the deaths of employees while Wells Fargo (including its Wachovia acquisition) has a similar amount awaiting future obituaries.
You may not be able to get blood from a stone, but American banks are doing very well with corpses.
Today's Wall Street Journal has a tutorial explaining how banks are holding $122.3 billion in life insurance on workers and retirees with themselves as beneficiaries in order to escape taxes, inflate their earnings and to fund bonuses and pension benefits:
"Though not improper, the practice is similar to what is known as 'janitors insurance,' an insurance-on-employees technique that has long been controversial. Critics say the banks' insurance contracts are a way for companies to create tax breaks for funding executive pensions...
"Companies don't use the policies as piggy banks to pay for compensation and benefits. Rather, they benefit from keeping the money in the contracts."
Gains on investments are not only tax free but reported as income each quarter to offset interest on deferred pay owed to executives.
According to the Journal, banks have nearly doubled the amounts of such insurance in the past four years. Bank of America, which has taken $52.5 billion from taxpayers so far, holds an estimated $17.3 billion of such investments in the deaths of employees while Wells Fargo (including its Wachovia acquisition) has a similar amount awaiting future obituaries.
You may not be able to get blood from a stone, but American banks are doing very well with corpses.
Friday, May 01, 2009
Washington Bank Heist
Willie Sutton said he robbed banks because that's where the money is, but it was never their money. They only handle and maneuver it around, like parking lot attendants.
Yet, according to Sen. Dick Durbin, after smashing up financial vehicles and taking taxpayer billions for repairs, when it comes to the US Senate, banks "frankly own the place."
As he tried unsuccessfully to line up votes to help avoid foreclosures in bankruptcy, Durbin told voters that though it's "hard to believe in a time when we're facing a banking crisis that many of the banks created," they "are still the most powerful lobby on Capitol Hill."
In the lull before the Obama Administration announces results of bank stress tests, there is growing sentiment for getting tougher on the keepers of the keys.
Sheila Bair, head of the FDIC, in a speech this week called for an end to the "too big to fail" philosophy that has allowed banks to hold a gun to the government's head.
“Taxpayers," she said, "should not be called on to foot the bill to support nonviable institutions because there is no orderly process for resolving them.”
The President himself foresees an end to "the massive leveraging and the massive risk-taking that had become so common," but his economic team so far has been tiptoeing around the banking industry and their Wall Street cousins, hoping to bribe and cajole them into less greed and more responsible behavior.
The time is coming to sweep out the parking lot and get new attendants who can remember who really owns the money they keep jockeying around for their own profit.
Yet, according to Sen. Dick Durbin, after smashing up financial vehicles and taking taxpayer billions for repairs, when it comes to the US Senate, banks "frankly own the place."
As he tried unsuccessfully to line up votes to help avoid foreclosures in bankruptcy, Durbin told voters that though it's "hard to believe in a time when we're facing a banking crisis that many of the banks created," they "are still the most powerful lobby on Capitol Hill."
In the lull before the Obama Administration announces results of bank stress tests, there is growing sentiment for getting tougher on the keepers of the keys.
Sheila Bair, head of the FDIC, in a speech this week called for an end to the "too big to fail" philosophy that has allowed banks to hold a gun to the government's head.
“Taxpayers," she said, "should not be called on to foot the bill to support nonviable institutions because there is no orderly process for resolving them.”
The President himself foresees an end to "the massive leveraging and the massive risk-taking that had become so common," but his economic team so far has been tiptoeing around the banking industry and their Wall Street cousins, hoping to bribe and cajole them into less greed and more responsible behavior.
The time is coming to sweep out the parking lot and get new attendants who can remember who really owns the money they keep jockeying around for their own profit.
Monday, April 20, 2009
Bank Bailout Mission Creep
With less lending now by TARP recipients since getting taxpayer money, the Obama economic team is letting it be known that a slow-motion takeover of banks is in the works.
"In a significant shift," the New York Times reports, "White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.
"Converting those loans to common shares would turn the federal aid into available capital for a bank--and give the government a large ownership stake in return."
Such temporary, partial nationalization is what some critics have been calling for since the credit crisis started last fall and, now that results of the stress tests, still undisclosed, apparently reveal little improvement in a shaky situation, the Administration is sending up trial balloons for doing just that under the cover of euphemisms.
Doing so by converting to equity positions with representation on bank boards would avoid use of the dreaded N word and steer clear of having to obtain Congressional approval.
As some of the largest banks announce profits and vow to return bailout money, they seem to be playing high-stakes Chicken with the President's economic advisers to encourage the stock markets and investors, but if and when the government takes seats on their boards, the game will become real and messy.
Everyone involved should be hoping that, before that happens, the free markets miraculously recover and start working again.
"In a significant shift," the New York Times reports, "White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.
"Converting those loans to common shares would turn the federal aid into available capital for a bank--and give the government a large ownership stake in return."
Such temporary, partial nationalization is what some critics have been calling for since the credit crisis started last fall and, now that results of the stress tests, still undisclosed, apparently reveal little improvement in a shaky situation, the Administration is sending up trial balloons for doing just that under the cover of euphemisms.
Doing so by converting to equity positions with representation on bank boards would avoid use of the dreaded N word and steer clear of having to obtain Congressional approval.
As some of the largest banks announce profits and vow to return bailout money, they seem to be playing high-stakes Chicken with the President's economic advisers to encourage the stock markets and investors, but if and when the government takes seats on their boards, the game will become real and messy.
Everyone involved should be hoping that, before that happens, the free markets miraculously recover and start working again.
Saturday, April 11, 2009
Banks Want a Bailout Do-Over
Anyone who has ever cashed in a Certificate of Deposit knows banks are adamant about extracting a penalty for early withdrawal but now, in repaying taxpayers, they are whining about the rules.
According to the New York Times, "Some of the healthier banks want to pay back their bailout loans to avoid executive pay and other restrictions that come with the money. But the banks are balking at the hefty premium they agreed to pay when they took the money."
In a perverse way, it's reassuring that the financial crunch has not altered the basic rule of banking--to squeeze every last cent out of using other people's money for their own profit--but it also casts doubt on the government's convoluted plan to save the money lenders from their own greed and error.
“You will be seeing additional actions by the administration,” the President said after a meeting yesterday with his advisers to discuss results of the bank stress tests and the $500 billion to $1 trillion plan for public subsidies to encourage private investors to buy mortgage assets.
That proposal has been characterized by Nobel Prize economist Joseph Stiglitz as "ersatz capitalism, the privatizing of gains and the socializing of losses. It is a 'partnership' in which one partner robs the other."
But even such a giveaway is apparently not enough for some bankers who are resisting this subsidized sale of toxic assets because it would make them book big losses.
In the coming weeks, as government regulators tighten their grip on the system, they will be relearning what every depositor knows--that banks are in the business of having it both ways and even those that are not too big to fail won't go down without taking every last taxpayer dollar with them.
According to the New York Times, "Some of the healthier banks want to pay back their bailout loans to avoid executive pay and other restrictions that come with the money. But the banks are balking at the hefty premium they agreed to pay when they took the money."
In a perverse way, it's reassuring that the financial crunch has not altered the basic rule of banking--to squeeze every last cent out of using other people's money for their own profit--but it also casts doubt on the government's convoluted plan to save the money lenders from their own greed and error.
“You will be seeing additional actions by the administration,” the President said after a meeting yesterday with his advisers to discuss results of the bank stress tests and the $500 billion to $1 trillion plan for public subsidies to encourage private investors to buy mortgage assets.
That proposal has been characterized by Nobel Prize economist Joseph Stiglitz as "ersatz capitalism, the privatizing of gains and the socializing of losses. It is a 'partnership' in which one partner robs the other."
But even such a giveaway is apparently not enough for some bankers who are resisting this subsidized sale of toxic assets because it would make them book big losses.
In the coming weeks, as government regulators tighten their grip on the system, they will be relearning what every depositor knows--that banks are in the business of having it both ways and even those that are not too big to fail won't go down without taking every last taxpayer dollar with them.
Tuesday, February 24, 2009
The Speech: "Yes We Will"
In Barack Obama style, optimism is not cheerleading but understanding the situation, finding the best answers and getting to work on them without delay. Tonight, we saw that approach, expressed with more assertion than we have seen before from the President in charge of saving the American economy.
“While our economy may be weakened and our confidence shaken, though we are living through difficult and uncertain times, tonight I want every American to know this,” he said in his address to Congress. “We will rebuild, we will recover, and the United States of America will emerge stronger than before.”
If there is a word that means the opposite of "demagogue," Obama defined it tonight by devoting his speech to detailing the difficulties without minimizing them while stressing the steps needed to save jobs, save homes and get the banking system working again.
He told us "we have lived through an era where too often, short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election. A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future. Regulations were gutted for the sake of a quick profit at the expense of a healthy market. People bought homes they knew they couldn't afford from banks and lenders who pushed those bad loans anyway. And all the while, critical debates and difficult decisions were put off for some other time on some other day."
In his even-handed way, the President emphasized his desire "not to lay blame or look backwards," but added that "it is only by understanding how we arrived at this moment that we'll be able to lift ourselves out of this predicament."
He acknowledged widespread resentment over the bank bailouts but made it clear that "we cannot afford to govern out of anger, or yield to the politics of the moment. My job--our job--is to solve the problem" and promised "I will not spend a single penny for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can't pay its workers or the family that has saved and still can't get a mortgage."
Beyond the immediate crisis, the President laid out long-range answers to energy independence, health care reform and improved education, insisting that they can't be delayed, because "to fully restore America's economic strength is to make the long-term investments that will lead to new jobs, new industries, and a renewed ability to compete with the rest of the world."
It was not called a State of the Union address, but the Congress and the country got a good look at what political leadership should be that was underscored, for comic relief, by a lame Republican rebuttal from Louisiana Gov. Bobby Jindal, full of stale platitudes about what government shouldn't do at a moment in American history when only government can stop the bleeding that free enterprise has inflicted on the country.
“While our economy may be weakened and our confidence shaken, though we are living through difficult and uncertain times, tonight I want every American to know this,” he said in his address to Congress. “We will rebuild, we will recover, and the United States of America will emerge stronger than before.”
If there is a word that means the opposite of "demagogue," Obama defined it tonight by devoting his speech to detailing the difficulties without minimizing them while stressing the steps needed to save jobs, save homes and get the banking system working again.
He told us "we have lived through an era where too often, short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election. A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future. Regulations were gutted for the sake of a quick profit at the expense of a healthy market. People bought homes they knew they couldn't afford from banks and lenders who pushed those bad loans anyway. And all the while, critical debates and difficult decisions were put off for some other time on some other day."
In his even-handed way, the President emphasized his desire "not to lay blame or look backwards," but added that "it is only by understanding how we arrived at this moment that we'll be able to lift ourselves out of this predicament."
He acknowledged widespread resentment over the bank bailouts but made it clear that "we cannot afford to govern out of anger, or yield to the politics of the moment. My job--our job--is to solve the problem" and promised "I will not spend a single penny for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can't pay its workers or the family that has saved and still can't get a mortgage."
Beyond the immediate crisis, the President laid out long-range answers to energy independence, health care reform and improved education, insisting that they can't be delayed, because "to fully restore America's economic strength is to make the long-term investments that will lead to new jobs, new industries, and a renewed ability to compete with the rest of the world."
It was not called a State of the Union address, but the Congress and the country got a good look at what political leadership should be that was underscored, for comic relief, by a lame Republican rebuttal from Louisiana Gov. Bobby Jindal, full of stale platitudes about what government shouldn't do at a moment in American history when only government can stop the bleeding that free enterprise has inflicted on the country.
Wednesday, January 28, 2009
Scenes From a Spending Spree
The House stimulus bill recalls those old TV game shows with contestants racing the clock to fill shopping carts, items spilling into the aisles in a mad dash to the checkout counter.
In the House, $200 million to re-sod the National Mall and $200 million to extend Medicare to cover family planning services fell out yesterday as Democrats keep ransacking the shelves from what the livid Wall Street Journal calls their "40-year wish list."
Is this the only way to revive a sinking economy--to rush through 647 pages of $825 billion in scattershot spending? The President talks about transparency and accountability, but it's hard to see those elements in a grab bag of what he himself has denounced as "throwing money" at the economy.
The funds for infrastructure are beyond dispute but make up only a small fraction of the whole.
“They keep comparing this to Eisenhower, but he proposed a $500 billion highway system, and they’re going to put $30 billion” in roads and bridges, says the ranking member of the House Transportation Committee. “How farcical can you be? Give me a break.”
After eight years of Bush inaction and deadlock, the exhilaration of rapid movement is understandable, but does everything have to be done at once?
If Democrats have to give up on bipartisanship, as seems inevitable, they should be thinking twice about ramming through a bill with booby traps that are sure to explode in their faces and undermine long-term fixes for the economy.
By all means, start the flow of defensible government spending, provide loans for hard-pressed states and municipalities, and strong-arm the banks into using bailout money for lending, but can't we slow down the drunken-sailor act? The hangover could be painful in the extreme.
In the House, $200 million to re-sod the National Mall and $200 million to extend Medicare to cover family planning services fell out yesterday as Democrats keep ransacking the shelves from what the livid Wall Street Journal calls their "40-year wish list."
Is this the only way to revive a sinking economy--to rush through 647 pages of $825 billion in scattershot spending? The President talks about transparency and accountability, but it's hard to see those elements in a grab bag of what he himself has denounced as "throwing money" at the economy.
The funds for infrastructure are beyond dispute but make up only a small fraction of the whole.
“They keep comparing this to Eisenhower, but he proposed a $500 billion highway system, and they’re going to put $30 billion” in roads and bridges, says the ranking member of the House Transportation Committee. “How farcical can you be? Give me a break.”
After eight years of Bush inaction and deadlock, the exhilaration of rapid movement is understandable, but does everything have to be done at once?
If Democrats have to give up on bipartisanship, as seems inevitable, they should be thinking twice about ramming through a bill with booby traps that are sure to explode in their faces and undermine long-term fixes for the economy.
By all means, start the flow of defensible government spending, provide loans for hard-pressed states and municipalities, and strong-arm the banks into using bailout money for lending, but can't we slow down the drunken-sailor act? The hangover could be painful in the extreme.
Tuesday, January 20, 2009
Wall Street Gets Obama's Message
It was a tale of two cities today with joy in Washington and despair in the financial markets of New York. When George W. Bush left the White House, he took Wall Street's free-lunch order forms with him and the panic is on.
The Dow lost 4 percent, the Nasdaq and Standard & Poor's 500 index more than 5 as Bank of America, J.P. Morgan Chase and Citigroup fell to new lows.
While Barack Obama was saying “Without a watchful eye, the market can spin out of control,” Wall Street was doing just that in expectation that the Henry Paulson billion-dollar giveaways would now be transformed with conditions, oversight and transparency.
With bank bailouts on the brink of being controlled by the firmer hand of an Obama Administration, shareholders are bailing out of institutions that flourished in the greed-is-good era and now are failing, shrinking or merging.
In this new climate, "too big to fail" may be an idea whose time has passed, to be replaced by smaller entities that can really work in a competitive free market.
How to get from here to there without falling in a financial abyss is the challenge for both government and the private sector. The new people in Washington had better be up to it.
The Dow lost 4 percent, the Nasdaq and Standard & Poor's 500 index more than 5 as Bank of America, J.P. Morgan Chase and Citigroup fell to new lows.
While Barack Obama was saying “Without a watchful eye, the market can spin out of control,” Wall Street was doing just that in expectation that the Henry Paulson billion-dollar giveaways would now be transformed with conditions, oversight and transparency.
With bank bailouts on the brink of being controlled by the firmer hand of an Obama Administration, shareholders are bailing out of institutions that flourished in the greed-is-good era and now are failing, shrinking or merging.
In this new climate, "too big to fail" may be an idea whose time has passed, to be replaced by smaller entities that can really work in a competitive free market.
How to get from here to there without falling in a financial abyss is the challenge for both government and the private sector. The new people in Washington had better be up to it.
Subscribe to:
Posts (Atom)