If you haven’t already left and followed the link above, the B.S. is that now the federal government is shoveling TARP funds to life insurers. As Glenn Hall over at the Street.com points out:
People pay insurers monthly premiums to transfer the risk of fire, car crashes and in some cases even investment losses. So when those things happen, the insurance pays. …
… I reluctantly acknowledged the need to shore up AIG because that is a special type of behemoth insurer whose activities underpin the entire financial world. But these other insurers are just lapping up the dole, and the government seems entirely too willing to keep giving out corporate welfare checks.
When do the princes and princesses of capitalism get to see some of the market’s ultimate accountability? That’s called failure. It’s real simple. If you mismanage your company, you fail.
What the Bush and now Obama Administrations are saying to us is that if you’re a well-heeled bank, insurer or brokerage you’re too big to fail.
I don’t buy the “Socialist” argument from the right. I don’t doubt that the Barack Obamas and Timothy Geithners of the world would rather not be running or propping up the private sector. But I also believe that these big companies – who finance political campaigns – are getting treated differently than the average Joe.
Here’s what the next bailout should be. In order to level the playing field the feds should cut a check to every taxpayer for, say, a hundred thousand bucks.
Perhaps others would do with their bailout as I would do with mine:
- $12,000 would go to Chase Bank to pay off my car loan
- $25,000 would go into some sort of savings
- $25,000 would go into home improvements
- $10,000 would go to investments
- $5,000 into a vacay
- The rest would be for general pump priming
Yesterday the New York Times ran a story reporting that executive pay at the nation’s largest banks is again approaching pre-financial crisis levels. This is simply a signal that management teams in New York, Charlotte and elsewhere in banking headquarters are pursuing a business as usual approach to what many believe is the beginning of the end to the recession.
Krugman’s column today further adds to the case he’s been making all along during this financial crisis – Wall Street’s emperors have no clothes and taxpayers are footing the bill to rebuild their wardrobe.
So why did some bankers suddenly begin making vast fortunes? It was, we were told, a reward for their creativity — for financial innovation. At this point, however, it’s hard to think of any major recent financial innovations that actually aided society, as opposed to being new, improved ways to blow bubbles, evade regulations and implement de facto Ponzi schemes.
Consider a recent speech by Ben Bernanke, the Federal Reserve chairman, in which he tried to defend financial innovation. His examples of “good” financial innovations were (1) credit cards — not exactly a new idea; (2) overdraft protection; and (3) subprime mortgages. (I am not making this up.) These were the things for which bankers got paid the big bucks?
Here’s what I think is most disturbing about recent financial history and the Bush and Obama Administrations’ policies:
Text-Document: Geithner Letter to Congressional Oversight Panel, April 20, 2009 – Status of TARP Funds
I guess this is from the “Are You Kidding Me?” Department.
The New York Times is reporting tonight that the Obama Administration is trying to figure out how to securitize for the masses the steaming pile of poo known as Wall Street’s toxic assets. In other words, can the government get you to invest in a mutual fund-like vehicle which would buy the subprime mortgage bundles you’re already subsidizing with your tax dollars?
The Times, in it’s wonderfully-at-times understated way says the plan is fraught with risks, but might work like this:
The new funds, the thinking goes, would buy troubled mortgage securities from banks, enabling the lenders to make the new loans that are needed to rekindle the economy. Many of the loans that back these securities were made during the subprime era. If all goes well, the funds will eventually sell the investments at a profit.
But, as with any investment, there are risks. If, as some analysts suspect, the banks’ assets are worth even less than believed, the funds’ investors could suffer significant losses.
Does it seem to anyone else that we’re so stuck in a bad behavior pattern that our collective ingenuity has just taken a day off during this whole mess? The bastards that brought all of this upon the world need to be nationalized for a period of time sufficient to unwind their ridiculous schemes and taken public once again under an old-fashioned regulatory regime where bankers bank, insurers write insurance policies, and brokers provide market services. Instead, we’re trying so hard to bend over backwards to preserve big business and the investment class that first Bush and now Obama are looking ludicrous.
This could also be taken as a signal that there’s a reason these assets are called toxic: they’re not worth anyone owning at the end of the day.
The Times of London reports on Tuesday that the Internation Monetary Fund will revise its estimates of how much the world’s bankers and brokers are on the hook for with regard to toxic assets. Excerpt below, entire article here.
Toxic debts racked up by banks and insurers could spiral to $4 trillion (£2.7 trillion), new forecasts from the International Monetary Fund (IMF) are set to suggest.
The IMF said in January that it expected the deterioration in US-originated assets to reach $2.2 trillion by the end of next year, but it is understood to be looking at raising that to $3.1 trillion in its next assessment of the global economy, due to be published on April 21. In addition, it is likely to boost that total by $900 billion for toxic assets originated in Europe and Asia.
Banks and insurers, which so far have owned up to $1.29 trillion in toxic assets, are facing increasing losses as the deepening recession takes a toll, adding to the debts racked up from sub-prime mortgages. The IMF’s new forecast, which could be revised again before the end of the month, will come as a blow to governments that have already pumped billions into the banking system.
(Source: NBC’s Meet the Press)
MR. DAVID GREGORY: … (Intro Deleted) Can General Motors be saved? With us, the new CEO, Fritz Henderson. … But first, we’re joined live from Detroit this morning by the new CEO of General Motors, Fritz Henderson.
Welcome to MEET THE PRESS.
MR. FRITZ HENDERSON: Good morning, David.
MR. GREGORY: The administration’s auto task force tasked General Motors with the idea of coming up with a viability plan. The company did that and the White House rejected it flatly. There were some stinging rebukes embedded in that report. Here’s just a sampling: “General Motors’ plan is not viable at is, at is–as it is currently structured. The assumptions in GM’s business plan are too optimistic. Progress has been far too slow.” Pretty harsh reaction from the Obama White House. How did the company get it wrong?
In the end it’s all on the taxpayer …
Joseph Stiglitz writes a wonderful op-ed in today’s NYT, Obama’s Ersatz Capitalism. From the piece:
In theory, the administration’s plan is based on letting the market determine the prices of the banks’ “toxic assets” — including outstanding house loans and securities based on those loans. The reality, though, is that the market will not be pricing the toxic assets themselves, but options on those assets.
The two have little to do with each other. The government plan in effect involves insuring almost all losses. Since the private investors are spared most losses, then they primarily “value” their potential gains. This is exactly the same as being given an option.
Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year’s time. The average “value” of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is “worth.” Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!
This is worth the two minute investment.