Michael Maiello's picture

    Lost Amidst All Of These Wars...

    ...are the still unresolved issues stemming from the financial crisis.  For example, the FDIC filed suit against three Washington Mutual executives last week seeking to recover $900 million that the government lost arranging for the bank's eventual sale to JPMorgan Chase.  I wrote about the suit and the absurd defense of the bankers in my column today.

    But beyond the specifics of WaMu (a once well-known brand that's already receded from the national memory) I think we're now starting to suffer from some national amnesia, or at least national distraction, with regards to the good ol' financial crisis.  Unemployment remains high.  The foreclosure crisis is ongoing.  Despite the financial reform bill, Wall Street still largely behaves as it did before the crisis.  Goldman Sachs has even announced its intention to continue trading for its own account, in outright defiance of the Volcker rule. The bailouts (TARP plus AIG, Fannie and Freddie) are $257 billion in the red despite the widespread and growing myth that the government didn't lose money on the deal.

    All eyes are on Libya and the the Middle East now as it seems we're headed for expansionist military and financial policies abroad and austerity at home.  Will this be allowed to stand?  Sure it will.  Because the American public was unable to sustain its outrage long enough to force the government to act over the objections of well-funded financial sector lobbyists.  We are, like a fat cop on the beat, gasping and giving up while the home burglars further outpace our pursuit with every stride they take.

    We never got mad enough to get justice and our financial overlords are glad, glad, glad to see it.  Sure, things got a little dicey there in Connecticut for awhile, but that's all in the past now.  Good thing, too.  Because it means they can screw us again.  And they will.  But in the aftermath we'll all have forgotten that we had this little chat about not forgiving and forgetting and the cycle will continue anew.



    Most of the Peak Oil decline narratives I read proposed that one day we wouldn't be able to fill up our cars, and all hell would break loose. Society would be paralyzed, there'd be no food on the shelves, no electricity and wild-eyed people would break into your house. So the smart people were supposed to get a few acres with trees, a wood stove, a shotgun, and stock up on supplies (and ummm, gold).

    All the gurus missed the interregnum during which the influential would simply manipulate laws and government to take what they want under the cover of quasi-legal taxes, fees, foreclosures and bailouts. The unlucky will lose their jobs, their health care and die, virtually unnoticed. The less unlucky will make less money and pay more for everything. The influential will claim that all it takes to succeed is conservative moral values and hard work.

    Pull up the ladder mate, I'm aboard

     J.D. Salinger

    ...in the importance and noise of tomorrow

    When the brokers are roaring like beasts on the floor of the Bourse,

    And the poor have the sufferings to which they are fairly accustomed


    ..Auden. In memory of W. B. Yeats

    Flavius: no comment

    Some people said that the fin-reg that passed wasn't all that bad, Innocent, even though all the rules on derivatives and clearinghouses weren't really finalized.  Looks like Geithner, et.al., are trying to finalize them, and they will screw kill us again.  Yup; we are wimps.  I just got an email from showdowninamerica advertising a call-in day to the State AGs to lobby them on negotiations with the fraudulent banks, but cripes; it seems even Tom Miller has backed off now that he wants to head of the CFPB. 

    Good on the WaMu prosections, but cynical economists realists always said it would be the Smaller Fry who might get prosecuted, if anyone.  Guess I shouldn't call $900 million small, but I am betting they'll settle it early on for some fraction of that.

    I was one who thought FinReg wasn't all that bad.  But it has been watered down since passage already.  As for small fry -- WaMu was the largest retail bank failure in the history of the US and one of the three executives being sued was actually kept on by Chase after the merger, but these are hardly titans of industry.  $900 million is real money, sure, and these three don't have it.  The government will settle for whatever the Directors and Officers insurance companies are willing to pay.  Oh, and no one will admit wrongdoing, because they never do.

    I know; I was having you on a bit; engaging in some rather rank teasing...  Cool  (Sorry; the Devil made me do it.)  I read washingtonsblog a lot; he covers many subject areas, from the Gulf to nuclear to economics, but I especially love that he publishes every so often the list of economists who say that until Wall Street fraud is full investigated and prosecuted, the economy won't recover, due to lack of trust across the board.  Makes sense.

    some bankers have behaved in ways that were immoral. But whether (they) have actually broken the law is less clear cut.

    If you look closely at those clever financial products that were conjured up……..a defining feature was that they were intended to exploit loopholes in the legal system. “Innovation” was thus about dancing on the edge of laws, regulations and ratings- but not breaking any rules.

    Gillian Tett in the FT

    It's like sticking your finger in a hole in the dike. When what you need is a whole new dike..

    No financial regulation will overcome the powerful temptation of an incentive payment which  lets a 20-something go into a luxurious retirement.. Until we remove that temptation it will defeat any regulation . Sure Geithner& Co did a poor job. But there wasn't any  good job that would have solved our problem. It's like trying to douse a forest fire with pails of water.

    The whole new dike is the same as the old dike , the  progressive tax structure we repealed in 1981.Until  the Reagan Revolution the 90% marginal rate reduced a million dollar bonus  to $100K. Now that number's  $650K. For a small segment of our population there's now a 6 to 7 times greater incentive/temptation .

    Or a $5 million dollar bonus (which actually wasn't worth awarding previously) would have shrunk to $500K. Now they are commonplace and yield $3.5M after tax .Lifetime comfortable security.

    With the stroke of RR's pen it was a whole new ball game .And in the first inning. Long Term Capital Management collapsed. As did a plethora of S&Ls.

    A lot of people started doing things they didn't do before. Some because the regulations had changed.. Some because the pay off was now sufficiently high to induce them to brilliantly avoid those regulations. Some because they were now irresistably.tempted to just plain break the law .All  because we'd made them an offer they couldn't refuse.

    We can try greater punishment. Merchant of Venice, anyone? Or we can reducing the reward for these destructive financial maneuvers. Which will actually work.


    Excellent points.  Though this is something I want to take up in a separate post... is the goal of work to make enough money so that you can stop working?  If so, what should the tax code look like?  If not, then what is the goal?

    I'll look for that post.

    Sound like Gillian Tett is just running some interference; it's not that fraud is hard to prove; it's that they are almost never investigating it!  How do you think over a thousand frausters were put in jail after the S & L debacle?  At least Bush Sr.'s agencies did the freaking investigations!


    Fraud is hard to prove if there isn't any.

    The S&L fraudsters had committed it so they were convicted. 

    Gillian Tett wrote what I quoted Since if she were caught lying it would ruin  her  career I'll take her remarks at face value .

    I think a good case has been made that the accounting at Lehman was totally fraudulent as it was meant to understate the firm's debt at quarter end.  But so far, no prosecutor has been willing to take me up on that.

    Could be. I'd be inclined to see what Barrons said about it.While Barrons is an uncritical enthusiast for the market economy it primarily defends the interests of the investor. I assume the legality of Lehman accounting depends on whether they actually got rid of certain items at quarter's end without any tangible commitment-to unwind the deal two days later. 

    With Enron's having so recently gotten this same thing wrong , if I were Lehman's comptroller I'd have made sure that there was no such arrangement. In writing. 

    It's also possible that, as you say, what they did was immoral and pushed the envelope of aggressive accounting but wasn't illegal.  Enron was dealing in fictions but there's a lot of ambiguity surrounding debt when it comes to bank holding companies and financial services firms.

    I think you're right to look to sources like Barron's, by the way.  My old employer, Forbes, is also excellent when it comes to sticking up for investor interest.

    13 Bankers argue the TBTF banks should be held to size limits not to exceed 4% of GNP...roughly $570 billion in assets

    Here's where they stood in 2009:

    • Bank of America               16%
    • JP Morgan Chase             14%
    • Citigroup                            13%
    • Wells Fargo                         9%
    • Goldman Sachs                   6%
    • Morgan Stanley                    5%

    That's 6 banks whose assets are  63% of GNP. And since Obama and the FED didn't resolve the 2008 meltdown with their faux-Pecora Commission, there's rumor the flood gates are still wide open and there's nothing to stop another meltdown a few years from now. I wonder how much more assets those 6 TBTF banks will accumulate by then that we taxpayers will have to cough up?

    Thanks for the reality check, Beetle.

    And this is the crux of my complaint... the banks have given up nothing, including the largesse of future bailouts when they screw up again.  I'm 36 years old and I've already lived through two major banking crises and both involved massive bailouts.

    You have made me curious.   What is source of your numbers?

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