Ten Things Not to Like About the US Government Policy Actions Known as “The Bailouts”

Courtesy of Jesse at the Café Américain.

1. The Treasury and the Fed rewarded some aggressive risk takers and failing business models at the expense of those who followed sound business practices. Those who followed conservative practices have been penalized twice; first on the way up and again on the way down. Those companies that did fail appear to have been ‘targeted’ by insiders.

2. Much of the process was done in secret with minimal transparency, debate, or disclosure by people who have obvious conflicts of interest.

3. The stated objectives of freeing up credit for the real economy and stemming foreclosures have not been achieved.

4. Trillions in taxpayer money were provided with few strings attached and at minimal stipulated rates of return. Furthermore, several of these institutions are using their taxpayer money to lobby against reform and award themselves pre-crisis salaries and record bonuses.

5. Bailout actions were arbitrary, inconsistent, ad hoc, and without an apparent guiding principles of justice.

6. The banking, rating, “insurance”, and regulatory systems have not been reformed and the perpetrators of the collapse and their enablers are remain in charge, now overseeing the “recovery.”

7. Criminal investigations are minimal; few people are facing indictments or even serious regulatory scrutiny for actions that are highly questionable. Official finds are whitewashes.

8. Regulations, regulatory structures, and other safeguards were implemented, revised or swept aside in chaotic and reckless fashion. [discount window participation and collateral, short selling rules, bank holding companies, mark-to-market]

9. The insider advantages, speculative excess, and extreme leveraging of the perpetrators has been allowed to continue; in fact, allowed to expand. There is a taint of insider trading and corruption that permeates the process.

10. Wall Street is bailed out; Main Street is not. Efforts to subsidize the incomes and balance sheets of failing firms have been massive and were implemented with minimal debate, requirements, or oversight; efforts to shore up taxpayer incomes and balance sheets have been comparatively minimal, subject to extensive debate and tinkering, highly selective, and incomplete.

Thanks to Cafe patron Malcolm McMichael

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“The States racked up some serious debt in keeping the world safe for democracy in the Second World War. On a percentage basis, it has recently spent a significant amount keeping its financial sector safe from productive effort and honest labour. They will raid the Treasury, take their fill, and then compel the government to confiscate the savings of a generation by defaulting on its obligations, its sovereign debt.” -Jesse at the Café Américain

‘We’ll have a dictatorship soon in the US’

The grand old man of letters Gore Vidal claims America is ‘rotting away’ — and don’t expect Barack Obama to save it [ London Times ]

Last year he famously switched allegiance from Hillary Clinton to Barack Obama during the Democratic nomination process for president. Now, he reveals, he regrets his change of heart. How’s Obama doing? “Dreadfully. I was hopeful. He was the most intelligent person we’ve had in that position for a long time. But he’s inexperienced. He has a total inability to understand military matters. He’s acting as if Afghanistan is the magic talisman: solve that and you solve terrorism.”

#Regrets, I’ve had a few#

Let’s try and not go overboard next time, folks

The End of Personal Finance
Decades of advice turn out to be so much garbage.

“For more than two decades, as income inequality increased and job security decreased, Americans lapped up personal finance columns, books, and television shows. We thrilled to stock tips and swooned at sensible strategies for using dollar-cost averaging to invest in no-load index funds. Buy and hold, my friends! The annualized gain for the S&P 500 stock index over time is more than 10 percent! You, too, can turn into the millionaire next door. Carpe diem, folks! Seize the financial day!”

[The Big Money]

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Will there even be a next time?

That other Santayana quote that’s relevant today more than ever

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“A fanatic is one who redoubles his effort when he has forgotten his aim.” —George Santayana

Ten principles for a Black Swan-proof world

By Nassim Nicholas Taleb

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

[FT]

The best way to rob a bank

… is to own one.

Bill Moyers interviews Bill Black. [PBS]

Transcript.

Sample…

WILLIAM K. BLACK: There are two reasons. One, they’re much closer to the bankers. These are people from the banking industry. And they have a lot more sympathy. In fact, they’re outright hostile to autoworkers, as you can see. They want to bash all of their contracts. But when they get to banking, they say, ‘contracts, sacred.’ But the other element of your question is we don’t want to change the bankers, because if we do, if we put honest people in, who didn’t cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up.

BILL MOYERS: The cover up?

WILLIAM K. BLACK: Sure. The cover up.

BILL MOYERS: That’s a serious charge.

WILLIAM K. BLACK: Of course.

BILL MOYERS: Who’s covering up?

WILLIAM K. BLACK: Geithner is charging, is covering up. Just like Paulson did before him. Geithner is publicly saying that it’s going to take $2 trillion — a trillion is a thousand billion — $2 trillion taxpayer dollars to deal with this problem. But they’re allowing all the banks to report that they’re not only solvent, but fully capitalized. Both statements can’t be true. It can’t be that they need $2 trillion, because they have masses losses, and that they’re fine.

These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed, not because…

BILL MOYERS: What do you mean?

WILLIAM K. BLACK: Well, Geithner has, was one of our nation’s top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well he’s a failed legacy regulator.

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“Benie Madoff was a piker.” -Bill Black comparing the Ponzmeister with executives at American financial institutions.

True dat

190 years ago Thomas Jefferson wrote:

Notable Quotables for $20 Alex

“Posterity is just around the corner” [Wikipedia]

“He is a nice man, but he is out of his depth.” [Spectator]

“What I don’t think people should do is suddenly stuff money in their mattresses and pull back completely from spending” [Faux Hotlanta]

“The graveyards are full of indispensable men.”  [Wikipedia]

“In today’s regulatory environment, it’s virtually impossible to violate rules…it’s impossible for a violation to go undetected, and certainly not for a considerable period of time.”  [Wikipedia]

“You cannot help the poor by destroying the rich. You cannot strengthen the weak by weakening the strong. You cannot bring about prosperity by discouraging thrift. You cannot lift the wage earner up by pulling the wage payer down. You cannot further the brotherhood of man by inciting class hatred. You cannot build character and courage by taking away people’s initiative and independence. You cannot help people permanently by doing for them what they could and should do for themselves.” [Wikipedia]

“Self-regulation is to regulation as self-importance is to importance”  [FT]

“Rome is on fire. The government is pumping gasoline through the fire hoses, and the only ones benefiting are the recipients of the trillions and trillions of dollars of your money. Fairly soon, I think it will be safe to say that the formerly prosperous middle class will become the working poor, in a land filled with half-vacant strip malls selling shoddily-made crap to a populace so numb and dazed it doesn’t know the difference and can’t remember anything better. Just as 50 years ago seems like a fairy-tale time, when a gas station attendant could support a wife, kids, a car or two, and a home on his salary, a few years ago will sound surreal to our children; imagine a time when two working parents could afford a home and a car! Imagine when there was enough work for both of them to even work steadily! Imagine owning a car! Or a home! That’s crazy talk, and we can’t change things, so why dwell on it…”  [Sanity Check]

“In characteristic Trump fashion, Trump Ocean Resort Baja will be the best of the best, and consequently always in demand” [Breitbart]

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First they came for the homeowners and I didn’t complain.
Then they came for the credit card holders and I didn’t complain.
When they came for me, there was nobody left to complain.

Pushing on a string, defined

Why the Fed., Inc. can’t prevent a deflationary depression:

The Money Printing Secret – A Collapse in the Money Multiplier

The Fed is printing money as fast as it can and cramming it into the vaults of the banks. This ‘printed money’ is known as the monetary base and includes Treasury Bills for bank reserves, currency, coins, etc. If we look at the broader measures of the money supply, we see that large portions of our money are actually private agreements created in the marketplace, such as deposits at banks, money market deposit accounts, and repurchase agreements. These private agreements are called commercial bank money. In a fractional reserve system, “new commercial bank money is created through loans.” We referred to these ‘money substitutes’ in March of last year.

In a banking crisis, these additional private agreements are not necessarily entered into. Instead, fearful bankers pile up excess reserves (monetary base) and refuse to lend.

The money multiplier, the rate at which bankers take the Fed’s printed money and multiply it into commercial bank money, collapses (chart below). This leads to a contraction in the money supply, which is deflation.

Therefore, the Federal Reserve is unable to prevent a deflationary Depression because the amount of money base it prints becomes less and less effective in boosting the money supply. More Fed printing at this point will lead to more fearful hoarding by bankers and the two opposing sides are locked into the deflationary spiral.

[Seeking Alpha]

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“Privatize the gains, but socialize the losses. Having the public bad bank buy the bad assets of the big money center banks and financial ponzi schemes and take all the losses is a thinly disguised act of theft and injustice on an almost incomprehensible scale.” -Jesse

Manipulating the great unwashed

We live in two Americas. One America, now the minority, functions in a print-based, literate world. It can cope with complexity and has the intellectual tools to separate illusion from truth. The other America, which constitutes the majority, exists in a non-reality-based belief system. This America, dependent on skillfully manipulated images for information, has severed itself from the literate, print-based culture. It cannot differentiate between lies and truth. It is informed by simplistic, childish narratives and clichés. It is thrown into confusion by ambiguity, nuance and self-reflection. This divide, more than race, class or gender, more than rural or urban, believer or nonbeliever, red state or blue state, has split the country into radically distinct, unbridgeable and antagonistic entities.

There are over 42 million American adults, 20 percent of whom hold high school diplomas, who cannot read, as well as the 50 million who read at a fourth- or fifth-grade level. Nearly a third of the nation’s population is illiterate or barely literate. And their numbers are growing by an estimated 2 million a year. But even those who are supposedly literate retreat in huge numbers into this image-based existence. A third of high school graduates, along with 42 percent of college graduates, never read a book after they finish school. Eighty percent of the families in the United States last year did not buy a book.

The illiterate rarely vote, and when they do vote they do so without the ability to make decisions based on textual information. American political campaigns, which have learned to speak in the comforting epistemology of images, eschew real ideas and policy for cheap slogans and reassuring personal narratives. Political propaganda now masquerades as ideology. Political campaigns have become an experience. They do not require cognitive or self-critical skills. They are designed to ignite pseudo-religious feelings of euphoria, empowerment and collective salvation. Campaigns that succeed are carefully constructed psychological instruments that manipulate fickle public moods, emotions and impulses, many of which are subliminal. They create a public ecstasy that annuls individuality and fosters a state of mindlessness. They thrust us into an eternal present. They cater to a nation that now lives in a state of permanent amnesia. It is style and story, not content or history or reality, which inform our politics and our lives. We prefer happy illusions. And it works because so much of the American electorate, including those who should know better, blindly cast ballots for slogans, smiles, the cheerful family tableaux, narratives and the perceived sincerity and the attractiveness of candidates. We confuse how we feel with knowledge.

The illiterate and semi-literate, once the campaigns are over, remain powerless. They still cannot protect their children from dysfunctional public schools. They still cannot understand predatory loan deals, the intricacies of mortgage papers, credit card agreements and equity lines of credit that drive them into foreclosures and bankruptcies. They still struggle with the most basic chores of daily life from reading instructions on medicine bottles to filling out bank forms, car loan documents and unemployment benefit and insurance papers. They watch helplessly and without comprehension as hundreds of thousands of jobs are shed. They are hostages to brands. Brands come with images and slogans. Images and slogans are all they understand. Many eat at fast food restaurants not only because it is cheap but because they can order from pictures rather than menus. And those who serve them, also semi-literate or illiterate, punch in orders on cash registers whose keys are marked with symbols and pictures. This is our brave new world.

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[TruthDig]

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BONUS!
Principles of the American Cargo Cult

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“Education is not the filling of a bucket but the lighting of a fire.” -Y.B. Yeats