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:

GDP, which I believe is due for an announcement this week, has generally grown but over the last two or three decades that growth has been in areas like financial services and based upon “paper value.”  In other words, where we used to count more tangible goods as product, and those goods were made in the U.S. and that economic activity supported a middle class.  The financial services’ contribution to the overall economy has become huge, but their numbers benefit very few – the investment class.  Both the Bush and Obama Administrations have so far let financial services off Scot-free and pushed trillions of dollars that industry’s way.  On the other hand, the nation’s Big Three automakers are being treated as one would expect failing companies to be treated – with healthy skepticism.

• New – or “re” – regulation in the financial services sector needs to be undertaken now.  Treasury Secretary Timothy Geithner and others in the Obama Administration have talked the regulation game, but there’s been no action.  The argument was for a time that we need to stabilize things then move on to resetting the rules.  Apparently, Wall Streeters are shifting comfortably back into business as usual.  The TARP and PPIP have not had the effect both administrations hoped for.  All of the other legislative priorities of the Obama Administration, from health care to energy policy will be derailed by a second wave of the financial crisis.  Regulate now.
• I’m begging on this one … Not One More Bailout.  As currently configured, nearly all the risk of saving the financial system is on the taxpayer.  Future bailouts or federal actions to prop up the system should be approached like the auto industry.  No more carrots without sticks.  It’s past time for accountability from bankers and brokers.
• Finally, for today, it’s astounding to me that revelations last week by New York Attorney General Andrew Cuomo that former Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke held a gun to Bank of America’s head to complete the Merrill-Lynch deal.  Furthermore, Paulson and Bernanke allegedly told BofA CEO Ken Lewis to not disclose his and management’s misgivings about the Merrill deal.  Why isn’t the media or Congress all over this?  When Wall Streeters like Geithner, Paulson and Summers are in charge only Wall Street benefits.  Were there SEC rules broken by Paulson and Summers?  Can the government intervene to stop the flow of information to corporate boards and shareholders?

Paulson & Bernanke Demanded Silence from BofA CEO

	Cuomo Letter to Congressional Leaders Regarding BofA/Merrill Lynch Merger Investigation
	Exhibit A: Transcript of Ken Lewis Deposition
	Exhibit B: BofA Board Meeting Minutes, December 22, 2008
	Exhibit C: BofA Board Meeting Minutes, December 30, 2008
	Exhibit D: Lewis Email

According to a story on the Reuters business wire tonight, President Barack Obama will meet with bankers on Friday and tell them, “We’re all in the same boat.”  His press secretary, Robert Gibbs, explains further:

“The president looks forward to getting an update on what they’re seeing happening in the economy,” Gibbs said on Wednesday of the banking chief executives who are slated to meet with the president later this week.

He said Obama’s message at the meeting would be to say that what is good for Wall Street is good for Main Street.

“We’re all in the same boat,” Gibbs said. “We have to understand that … what is good for one has to be also good for the other.”

This is becoming the schizophrenic presidency.  One day we get Obama, hero for the middle class.  This Obama campaigns on a middle class tax cut – a true middle class tax cut, not Republican trickle down – and puts it in his budget.  The next day, after attacks from Capitol Hill, the middle class tax cut is suddenly a “maybe.”  One day we get President Outrage – angry beyond belief at those bloodsuckers on Wall Street for taking advantage of the taxpayer.  The next day we get a trillion dollar pledge from the President’s treasury secretary to use more taxpayer money to further front toxic assets.

Today, this is just President Bad PR.  Do taxpayers want to hear the President coddling bankers?  “We’re all in the same boat?”  Give me a break.  We’re all in a barrel headed over the Niagra Falls – a barrel the bankers and brokers put us into.  So far, in this recession, this financial crisis, the bankers and brokers have been sailing aboard the Queen Mary.  I mean, come on — they made all the mistakes and we’re stuck footing the bill.

I know I’m not in the same boat with the suits Obama will speak to on Friday.  When they fuck up, Hank Paulson, Timothy Geithner and Ben Bernanke are like the OJ Simpson Dream Team, pulling Wall Street’s chestnuts out of the fire.  When you or I fuck up – we’re just fucked.

Over the weekend The Times and other newspapers reported leaked details about the Obama administration’s bank rescue plan, which is to be officially released this week. If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.

This is more than disappointing. In fact, it fills me with a sense of despair.

After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.

And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.

It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.

Follow the link above and go read the rest.  Krugman explains the economics of the issue.  Anyone else getting the feeling the Obama Administration – like the Bushies before them – are bending over backwards to not offend the people who brought our economy to its knees?

How many WTF? moments will the American International Group give us by the time the company is once again solvent or is finally taken out behind the barn and put out of its misery?

Last Saturday night, with just enough time to allow the Sunday shows to prepare killer questions for Larry Summers, the AIG bonus story entered the media consciousness.  If you’ve been in a cave all week the story goes something like this: Since last September the U.S. government has pumped $170-180 billion into the gaping maw of the world’s largest insurer and biggest loser in the reality show known as the credit default swap market.  Uncle Sam now owns 80% of AIG.  It was revealed last Saturday that the company has paid $165 million in bonuses to executives and staff of its financial products division.  This is the division that has essentially ruined the entire company.  The American public is royally pissed off and every politician worth his or her salt is “outraged.”

Today – which is Friday and will give those Sunday show producers more time to develop their zingers – it was revealed that AIG is suing the U.S. government.  From the Washington Post:

The big insurer is trying to recover $306.1 million of taxes, interest and penalties from the Internal Revenue Service. Among other things, AIG is contesting an IRS determination last year that the company improperly claimed $61.9 million of tax credits associated with complex international transactions.

AIG has also asked a court to make the government reimburse it for money spent suing the government.

Given that the government owns 79.9 percent of AIG and has been using taxpayer money to fill a seemingly bottomless hole at the company, the lawsuit might seem like a case of biting the hand that feeds it. But an AIG spokesman said the company has an obligation to press its case.

WTF?

OK, the legal case can be made – perhaps even the philosophical case on some level – that the corporation is obligated to pursue this action.  For 99% of companies this would be a no-brainer.  Sue the hell out of the IRS.

But things are a wee bit different in this case aren’t they?  AIG has officially become the face of this Great Recession.  AIG is the corporate face on the milk carton that is the U.S. financial crisis.  The American taxpayer now owns AIG because Ben Bernanke, Hank Paulson and Timothy Geithner are afraid to let the company fail.

Most taxpayers aren’t going to look at AIG’s suit against the government the way in which a chief legal counsel would view the matter.  Taxpayers are already mad as hell that they own the company, disturbed that their dollars paid bonuses to losers and will no doubt take the attitude that if AIG was overtaxed, then we should take it off of what they us.

What AIG might want to consider as it moves forward in wasting the government’s time with lawsuits is a peculiar aspect of value for any business – goodwill.  Goodwill is hard to put a price on.  In the case of AIG, their goodwill is currently worth $0.  No matter how defensible a legal action is at this time for the company, I don’t know that it’s worth driving the worth of their goodwill into negative territory – perhaps forever.