- Exit Paulson, enter Geithner with the latest "no
banker left behind plan" - aka whatever Wall Street wants, Wall Street
gets. Yet, the reception was underwhelming. The Dow plummeted 382 points
while investors took shelter in bonds and gold. AP reported that "the
new bank rescue plan landed with a thud on Wall Street" as investors
worried that no end to the crisis is in sight. Editorial and op-ed commentaries
were near unanimously negative and some especially critical.
-
- At a February 9 congressional briefing, lawmakers greeted
Geithner with laughter and sarcasm, but most of it is just politics. Bailout
opponent Brad Sherman (D, California) asked for details and a dollar
amount, but instead got generalities about what he announced the next
day - a plan to:
-
- -- "clean up and strengthen the nation's banks;"
in other words, spend hundreds of billions more to recapitalize insolvent
ones;
- -- create a Public - Private Investment Fund to shift
toxic assets from them to the public;
- -- expand the Fed's Term Asset-Backed Securities Loan
Facility (TALF) to provide funding for investors to buy toxic assets;
partial government guarantees would be offered as incentive; and
-
- -- use "the full resources of the government to
bring down mortgage payments (and) reduce mortgage interest rates;"
already tried are foreclosure moratoriums, payment reductions, re-amortizations
of delinquent balances, interest rate cuts, and more; yet home prices
keep falling; a glut of unsold homes remains; foreclosures mount at a
ferocious pace; the Foreclosure Data Bank cites "over 1 million bank
foreclosures for sale;" and borrowers with modified loans are re-defaulting
anyway.
-
- The Office of the Comptroller of the Currency (that charters,
regulates, and supervises national banks) reported that 36% of first
quarter 2008 modified loans were delinquent after three months and 58%
after eight months. The main problems are over- indebtedness and huge numbers
of continuing job losses.
-
- Geithner omitted these facts and that each of his elements
conflicts with the others. Most important, instead of closing or nationalizing
zombie banks, punishing their top executives for decades of criminal fraud
and excess, and wrecking the global economy, Geithner, like Paulson, will
reward them as The New York Times reported.
-
- On February 10, it explained that he'll "flood the
financial system with as much as $2.5 trillion" on top of $9 trillion
previously doled out, and this is just "Stage One of a two-stage
plan," according to economist Michael Hudson. He asked: "recovery
for whom (and what do) they want to recover?" For Wall Street, of
course, in a new "Bubble economy" of the kind Alan Greenspan
engineered: "wealth in the form of indebtedness of the 'real' economy
at large to the banking system, and unprecedented capital gains to be
made (from) a wave of asset-price inflation."
-
- The problem, according to Hudson, is it can't be done
given "today's debt levels, widespread negative equity, and still-high
level of real estate, stock and bond prices. No amount of new (bank)
credit or capital will induce (them to loan more) to real estate that
already is over-mortgaged, or to individuals and corporations already
over-indebted" or on the edge like the auto giants, auto suppliers,
homebuilders, others, and who knows who next will join them.
-
- Geithner got hammered on all fronts, including by former
hedge fund manager Andy Kessler in a February 10 Wall Street Journal op-ed
saying:
-
- "The Treasury secretary seems stuck on keeping the
banks we have in place. But we don't need zombie banks overstuffed with
nonperforming loans - ask the Japanese. Mr. Geithner wants to 'stress
test' banks to see which are worth saving. The market already has"
with Citigroup, Bank of America and others now a mere fraction of their
former worth, and Geithner's idea is to "throw good money after bad
to a banking system struggling under the weight of its own mistakes."
-
- "What we need are healthy banks with clean balance
sheets and enlightened risk assessment to provide consumer and business
loans that will generate returns to shareholders." Let them sell
their own toxic debt. They won't because they "don't like the price."
As for TARP, it failed and so will TARP 2.0 or what's now called a Financial
Stability Plan. The idea is to get "private capital to buy bad loans
and derivatives," but banks won't price them low enough to sell.
Moreover, who'll buy risky assets unless they're practically given away
or Washington guarantees them.
-
- Kessler wants the banks nationalized but only short-term.
Others agree saying no quick fixes are possible, and Financial Times
writer Martin Wolf asked whether Obama's presidency already failed in
headlining his February 10 column: "Why Obama's new Tarp plan will
fail to rescue the banks."
-
- It looks like "yet another child of the" previous
year and a half's interventions: "optimistic and indecisive"
at a time "focus and ferocity" are needed. Instead of crafting
a surer solution, it timidly chose "three arbitrary, self-imposed
constraints: no nationalisation; no losses for bondholders; and no more
money from Congress."
-
- Better advice is what Washington gave the Japanese in
the 1990s but won't follow itself: "admit reality, restructure banks,
(create good ones) and above all, slay zombie institutions at once."
Instead, dead banks keep walking away with trillions more good money
after bad.
-
- It's why banking analyst Meredith Whitney told Bloomberg
(on February 4) that "Investors should not even consider owning banks
at this point on an equity basis." Looking forward, she also doubts
that Citigroup will exist in its current form, large numbers of Wall
Street layoffs will continue, and eventually "we'll go back to an
older and smaller bank system, where local banks lend off what they have
in deposits."
-
- In October 2007, Whitney was one of the first to spot
trouble when she predicted that Citigroup would cut its dividend in the
face of a weak balance sheet. She followed by forecasting losses and write-
downs at Bank of America, Lehman Bros., and UBS as well as insights on
bond insurer implosions that threatened banks' bottom lines. More still
about damaged assets at Merrill Lynch.
-
- She advised investors to bail out of bank stocks and
saw the economy heading into an "early 1980s-style" recession
that would devastate 10% of the population that was overextended by the
housing boom. She said: "It feels like I'm at the epicenter of the
biggest financial crisis in history," yet she didn't realize how
accurate that was at the time.
-
- She criticized the incestuous relationship between Wall
Street and the credit-rating agencies that, in her judgment, would impede
the banks' ability to recover. They hated her, but one top Citigroup
executive said: "You've got to give it to her - she figured it out,"
well enough that today her comments move markets.
-
- Investor Jim Rogers never holds back, and, on February
11, was true to form on Bloomberg: Interviewed on Geithner's plan he said:
-
- "Mr. Geithner has been bombing for 15 years. (He)
caused the problem. He was head of the New York Fed that was supposed
to be supervising banks. (Instead), all last year he came up with TARP.
He came up with all these absurd bailouts. Geithner's has never known
what he's doing. He doesn't know what he's doing now, and pretty soon
everyone will know it, including Mr. Obama."
-
- Asked how to fix the problem, he referenced Washington's
advice to Japan in the 1990s. "You let (bad banks) go bankrupt. You
clean out the system. You wipe out insolvent ones and let (good banks)
take over. America is making the same mistake (as Japan), and the politicians
are making it worse. You want to know why they're making it worse? They
want to support their friends on Wall Street."
-
- "The idea of the government buying up bad assets
is not going to work." Either the price will be too high (at taxpayer
expense) or it will be too low....it's not going to work. It's never
worked....Pouring in new money will only weaken the whole system. Go back
in history and see what worked. Countries that took their pain (solved
their crisis). It was horrible going through it, but they came out of
it and became rapidly growing. Countries that did it our way never came
out of it until a long, long time later, if ever."
-
- "What Geithner should have said was we have a horrible
problem of too much borrowing, too much debt, and too much consumption.
You know what we are going to do - we're going to borrow more, go deeper
in debt, and consume more....These guys don't know what they're doing
(and it's why) I'm shorting" the market.
-
- Is It Time to Nationalize Insolvent Banks?
-
- George Soros framed it this way:
-
- "The hard choice facing the Obama administration
is between partially nationalizing the banks, or leaving them in private
hands but nationalizing their toxic assets."
-
- For Nouriel Roubini in his February 10 commentary, the
choice is clear - the former, not the latter option that will be a "royal
(taxpayer) rip-off" if assets are bought at above market valuations.
-
- He sees losses so large that the US banking system "is
effectively insolvent in the aggregate." So are most UK banks and
many other continental European ones. He lists four Obama options under
consideration:
-
- (1) "recapitalization together with" some kind
of government "bad bank" purchase of toxic assets;
-
- (2) "recapitalization together with government guarantees
- after a first loss by the banks - of the toxic assets;"
-
- (3) "private purchase of toxic assets with a government
guarantee and/or....public capital to set up a public-private bad bank
where private investors participate" in buying bad assets; or
-
- (4) "outright government takeover" through
nationalizations or "receivership" to be cleaned up, then sold
back to private investors.
-
- The first three are deeply flawed. A bad bank may overpay
at higher cost to taxpayers. If it buys at mark-to-market prices, "many
banks (may go) bust." Even offering guarantees cause "massive
valuation problems (with) very expensive risks for taxpayers." Under
a bad bank, "the government has the additional problem of having
to manage" these assets, something it has little expertise doing.
-
- Geithner's proposal for removing bad assets is "very
cumbersome," problematic, and foggy on details. Its main problem
is it may end up being "a royal rip-off of the taxpayer if the guarantee
is excessive given the true value of the underlying assets." On the
other hand, low valuations will expose bank insolvencies and show that
government takeovers are essential.
-
- All proposed plans so far "may be a big fudge that
either (don't) work or work only if the government bails out shareholders
and unsecured (bank) creditors."
-
- Roubini calls nationalization the best option to let
shareholders take the pain, not the public. It also "resolves the
too-big-to- fail problem (because it's now) become an even bigger-to- fail"
(one) as the approach (of letting) weak banks take over weaker ones"
has failed.
-
- Sweden in the 1990s had the right approach. Japan had
a lost decade with the wrong one and is still mired in trouble. "The
US, UK and other (troubled) economies risk near depression and stag- deflation....if
they fail to appropriately tackle this most severe crisis."
-
- Plans so far adopted have failed. Wasting more months
on more of the same may turn a "U-shaped recession into an L-shaped
near depression" with governments forced to nationalize anyway. Roubini
proposes Plan N for "nationalization of insolvent banks" here
and in other troubled economies.
-
- In a February 15 Washington Post op-ed, Roubini and Matthew
Richardson headlined: "Nationalize the Banks! We're all Swedes Now."
The US banking system is so close to the edge that "unless we want
to become like Japan in the 1990s -- or the United States in the 1930s
-- the only way to save it is to nationalize it."
-
- The time for dithering is past. "We have used all
our bullets, and the boogeyman is still coming. Let's pull out the bazooka
and be done with it."
-
- Roubini and Richardson are "free-market economists"
and New York University Stern School of Business professors.
-
- Michael Hudson's Way "to Save the Economy from Wall
Street"
-
- In his view: "The only real solution to today's
debt overhang is a debt writedown," and let debtors (the banks and
others) take the pain, not the public. "Until this occurs, debt service
will crowd out spending on goods and services and there will be no recovery.
Debt deflation will drag the economy down while assets are transferred
further into the hands of the wealthiest 10 percent of the population
(in the financial sector)" while the rest of us get poorer.
-
- Wall Street wants another way, and that's the problem.
It wants costs socialized and profits privatized. It believes "free
markets are 'free' of public regulation against predatory lending; 'free'
of taxing the wealthy (and) shift(ing) the burden onto labor; 'free'
for the financial sector to (plunder) the 'real' economy like parasitic
ivy around a tree to extract the surplus." This makes a travesty
of freedom, but they get away with it because presidents like Obama let
them, and, according to one observer, trillion dollar giveaways are like
buses. They'll be another one along shortly.
-
- Paul Krugman on Obama's Stimulus Plan
-
- On February 12, Krugman's New York Times article headlined:
"Failure to Rise."
-
- "Break out the Champagne," he wrote...."Or
maybe not. These aren't normal times (so) Obama's victory feels more than
a bit like defeat. The stimulus bill looks helpful but inadequate, especially
when combined with a disappointing plan for rescuing the banks."
Disappointing? Corrupted and awful more accurately describes it.
-
- As for stimulus, Republicans backed the idea that Bush's
tax cuts for the rich deserves more of them while John McCain called aiding
troubled households "generational theft."
-
- Obama got what he asked for, but "almost certainly
didn't ask for enough." While $800 billion sounds impressive, it
doesn't bridge the $2.9 trillion gap between the economy's ability to
produce over the next three years and what, in fact, it will, according
to the Congressional Budget Office.
-
- It's also too long on tax cuts and not enough for millions
of troubled households. Overall, "the Obama administration's response....is
all too reminiscent of Japan in the 1990s: (hoping for) a fiscal expansion
large enough to avert the worst, but not enough to kick-start recovery;
(it) supports the banking system, but (is) reluctant to force banks to
take their losses."
-
- "....I've got a sick feeling in the pit of my stomach....that
America isn't rising to (its) greatest economic challenge in 70 years....they
seem alarmingly willing to settle for half (and failed) measures (that
expose) the grotesque failure of their doctrine in practice." So
far the "verdict" on Obama is "no, we can't."
-
- Today's Global "Financial Coup d'Etat" Legacy
-
- Catherine Austin Fitts was a high-level business and
government insider and now is Solari.com's editor. On February 2, her
Financial Coup d'Etat article discussed a "Washington - Wall Street
partnership" that for years:
-
- -- through fraud, engineered a housing and debt bubble;
-
- -- illegally offshored vast sums of capital globally;
in Russia, for example, where millions of people discovered their bank
accounts and pension funds were gone - "eradicated by a falling
currency or stolen by mobsters who laundered money back into big New York
Fed member banks for reinvestment to fuel the debt bubble;"
-
- -- turned privatization schemes into "piracy,"
or what she calls "mov(ing) government assets to private investors
at below-market prices and then shift(ing) private liabilities back to
government at no cost to the private liability holder."
-
- This was in the 1990s. Eight years under George Bush
accelerated these practices and created today's global economic crisis,
the result of a "Washington - Wall Street game." People everywhere
are "up against the same financial pirates and (economic warfare)
model" as those in America and the West.
-
- Year after year, a bankster - politician conspiracy continues
the global heist - sucking trillions of capital "out of country after
country," including in America from Americans. Fitts posed a question
she raised in 2001: once the bubble economy imploded, is "the time
coming when we (like emerging economies) would be de- modernized?"
More than ever, "this is the question" we must ask, and how
that prospect affects us.
-
- Stimulus 101 - The Devil Is in the Details and Follow-Through
-
- Hudson again: Trillions for banksters, crumbs for the
public. But fixing today's economy requires change. "Today's economic
shrinkage cannot be reversed without a recovery in consumer demand."
Not a small or temporary one, a real sustained one. "The economy
has lost the 'virtual wealth' in higher-priced homes and (a healthy) stock
market, and must rely on after-tax earnings (alone). But I see little
concern for wage earners in the Treasury plan," and not enough in
the stimulus. "Without debt relief (and ending job losses), consumer
spending and business investment will not recover."
-
- Geithner's plan doesn't address this. "It seeks
to recover the debt- bubble economy, not the real (one) of production and
consumption." It's the same failed approach as under Bush. Why not?
As New York Fed president, Geithner and Paulson engineered it along with
Fed chairman Bernanke.
-
- As for "stimulus," the House and Senate (on
February 13) passed the American Recovery and Reinvestment Act (ARRA)
of 2009. It contains 1041 pages, and as Bloomberg reported, full details
"were still emerging as the plan headed for congressional passage."
Others in Congress complained that it was impossible to read ahead of
the rushed through vote.
-
- From what's known, here's a breakdown of most of the
approved $787 billion:
-
- Overall
-
- -- $287 billion in tax cuts; $310 billion in discretionary
spending, including infrastructure, energy and healthcare systems; and
$190 billion for benefits, including unemployment and Medicaid.
-
- For the Poor and Unemployed
-
- -- $40.5 billion for 20 extra weeks of unemployment benefits
through December 31 plus another 13 weeks for workers in 30 "high
unemployment" states; also a temporary extra $25 weekly benefit,
and the first $2400 in benefits are exempt from federal income tax in
2009;
-
- -- $20 billion for food stamps;
-
- -- $3 billion in temporary welfare and other miscellaneous
benefits.
-
- Comment: these are meagre amounts for millions of beleaguered
households, including one worker every five seconds losing his or her
job; many more forced to part-time from full-time ones; pensions and benefits
being lost; and tens of millions in the country overall under growing
duress.
-
- Direct Cash Payments
-
- --$14 billion for one-time $250 payments to Social Security
recipients, poor people on Supplemental Security Income, and veterans
on disability and pensions.
-
- Comment: the amount is so small, it hardly matters.
-
- Infrastructure
-
- -- $46 billion for transportation projects, including
$27 billion for highways and bridge construction;
-
- -- $8.4 billion for mass transit;
-
- -- $8 billion for high-speed railways; $1.3 billion for
Amtrak;
-
- -- $4.6 billion for the Army Corps of Engineers;
-
- -- $4 billion for public housing;
-
- -- $6.4 billion for clean and drinking water projects;
-
- -- $7 billion for broadband Internet service to underserved
areas.
-
- Comment: most allocations are small; will take time to
kick in; and will mostly enrich developers, construction firms, and the
FIRE sector (finance, insurance, and real estate).
-
- Health Care
-
- -- $24.7 billion for a 65% subsidy for health insurance
premiums for up to nine months for the newly unemployed under the (1985-
enacted) COBRA program; COBRA lets these workers keep their health insurance
for a limited time; those eligible are individuals earning $125,000 or
less and couples with incomes of $250,000 or less;
-
- -- $87 billion to states for Medicaid;
-
- -- $19 billion to modernize health information technology
systems - this is a plan to create a health history database for everyone
in the country; let private produce business produce and control it,
and share or sell the information to all takers; in other words, our personal
health history will be privatized for profit;
-
- -- $10 billion for health research and construction of
National Institutes of Health facilities;
-
- -- $8 billion to states to defray budget shortfalls.
-
- Comment: some of this will help, but it's not enough;
no plan is envisioned for even partial national health care at a time
nearly 50 million Americans are uninsured and millions more will be in
coming years; as for the states and cities, combined they need tens of
billions to close their budget gaps.
-
- Energy
-
- -- $50 billion for various programs; some for efficiency,
weatherizing low-income homes, and likely small amounts for renewable
energy - too small to matter;
-
- -- $6.4 billion for nuclear weapons site clean up; the
problem is so great, tens of billions are needed;
-
- -- $11 billion for a so-called "smart electricity
grid" to reduce waste;
-
- -- $13.9 billion for subsidized renewable energy project
loans;
-
- -- $6.3 billion for state efficient and clean energy;
-
- -- $4.5 billion to make federal buildings more energy
efficient.
-
- Comment: nearly all of this is for business.
-
- Education
-
- -- $47 billion for states to relieve budget shortfalls
and other purposes;
-
- -- $26 billion for special education and No Child Left
Behind privatization and testing programs in K-12;
-
- -- $15.6 billion for Pell Grant increases by $500 - $5350
in 2009 and $5500 in 2010;
-
- -- $2 billion for Head Start.
-
- Comment: like the Bush administration, Obama and his
Education Secretary, Arne Duncan, are committed to destroying public
education nationally and turning it over to business for profit.
-
- Homeland Security
-
- -- $2.8 billion for DHS programs, including $1 billion
for airport screening equipment.
-
- Comment: this is more funding to militarize the country.
-
- Law Enforcement
-
- -- $4 billion to states and local law enforcement for
officers and equipment.
-
- Comment: still more funding for militarization.
-
- Taxes
-
- -- a new tax credit: $115 billion for a $400 per worker,
$800 per couple tax credit in 2009 and 2010;
- -- starting in June 2009, most workers will have about
$15 less per bi-weekly pay period withheld from paychecks over a one-year
period;
-
- -- millions of Americans who earn too little to pay federal
income tax can file returns in 2010 and receive credits;
-
- -- individuals earning over $75,000 and couples exceeding
$150,000 will receive reduced amounts; individuals earning over $100,000
and couples $200,000 get nothing;
-
- -- $70 billion in 2009 for alternative minimum tax (AMT)
relief for about 24 million taxpayers; an average family of four affected
will save $2300; this is substantial since families earning as little
as $45,000 otherwise would be taxed;
-
- -- $13.9 billion for a $2500 expanded tax credit (above
the current $1800) for college tuition and related expenses for 2009 and
2010; the credit applies for individuals earning no more than $80,000
and couples a maximum $160,000; this helps but barely relieves the burgeoning
tuition burden that makes college unaffordable for millions without considerable
scholarship aid plus the ability to get loans for the residual;
- -- $5 billion in 2009 for faster business depreciation
on equipment, including computers;
-
- -- $6.6 billion for a temporary $8000 first-time home-buyer
credit for purchases after January 1 and before December 1, 2009; removed
is the current requirement for credits to be repaid if buyers stay in
their homes for less than three years; those eligible are individuals
earning $75,000 or less and couples earning $150,000 or less;
-
- -- $2.5 billion to make sales and excise taxes paid on
new car, recreational vehicle or motorcycle purchases tax deductible;
excluded are individuals earning $125,000 or more and couples earning
$250,000 or more;
-
- -- $14.8 billion for a temporary child tax credit increase
by lowering the income threshold to $3000 in 2009 and 2010;
-
- -- $4.6 billion for a temporary earned income tax credit
to 45% from 40% for qualifying families with three or more children; it
also includes marriage penalty relief for couples who qualify;
-
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