Must Read: Wall Streeters Call for Reform & Say Federal Efforts to Combat Financial Crisis Inch Wide, Mile Deep
America and the world have found out the hard way how Wall Street’s fast and loose ways hurt regular folks more than the fatcats with Gulf Stream jets and golden parachutes. It’s heartening to see at least two creatures of The Street find religion and evangelize the good news of reform.
Sandy B. Lewis and William D. Cohan do just that in an op-ed piece headlined, The Economy is Still at the Brink, in Saturday’s New York Times. It’s a shame that the editors at the Times decided to run their important message in Saturday’s edition rather than Monday morning when it might have attracted more attention from the likes of CNBC or the day’s cable news cycle. Cast against the constant stream of “Everything’s Fine,” from the Obama Administration to the likes of Jim Cramer, Lewis and Cohan’s message is succinct and important to the long run of the U.S. economy.
In short, the pair are telling us that the structural issues with American high finance are still there, Bush and Obama Administration efforts to staunch the bleeding are merely fingers in Wall Street’s dike, the current system is too heavily weighted in favor of ‘insiders’ and a program of real reform is needed to restore full confidence and ensure a system that works for all levels of the economy.
Here are some take aways from their piece:
- If nearly everyone agreed six months ago that our banking system was a sham, why is every government program or action directed at preserving the old order? Lewis and Cohan say to start with compensating executives well for moving the ball, but create a system where their net worth is tied to their failures as well.
- The writers wonder why so many federal resources are going to propping up those at the top of the financial pyramid – the big banks and insurers – when recovery will come only when the bottom of the pyramid gets more confident.
- Rather than talk of the “imminent return” of the “good times” President Barack Obama should be messaging America with “living within our means.”
- For the “long term health of the market” shareholders and other investors in the big banks need to feel the “market’s wrath.” No more rescues for the banks that created the mess.
- More market discipline and fewer government bailouts – where will the federal government draw the line?
- Fewer academics should be advising the president and he should make room for more folks saavy in trading and markets – not to have the fox guard the henhouse, but to design incentives that will work to revive the capital markets.
- More transparency in the entire system – from providing the same real-time market information to citizens that’s available to Goldman Sachs or Morgan Stanley – to replacing the marketing exercise known as financialstability.gov with real information.
- Go after the bigwigs who brought this pox upon us – either through truth commissions or the same way the FBI prosecutes the mafia.
There’s a lot more detail in what Cohan and Lewis wrote – go check it out.
The Daily Graphic: U.S. Investment Bankers Still Feeding at the Trough
The graphic below is from the New York Times. It appears that executive pay is not missing a beat, even though most of Wall Street’s top management have failed their firms and the country miserable over the past few years.
Click the graphic for full-size view.
I’m An Obama Supporter and This Is An Example of Why It Makes Me Sick That Summers and Geithner Are in Charge of Economy
From the Washington Post tonight:
Lawrence H. Summers, one of President Obama’s top economic advisers, collected roughly $5.2 million in compensation from hedge fund D.E. Shaw over the past year and was paid more than $2.7 million in speaking fees by several troubled Wall Street firms and other organizations. …
… But Summers — who, as chairman of the National Economic Council, is a leading architect of the administration’s economic policies and helped shape the response to the global recession — appears to have collected the most income. Financial institutions including JP Morgan Chase, Citigroup, Goldman Sachs, Lehman Brothers and Merrill Lynch paid Summers for speaking appearances in 2008. Fees ranged from $45,000 for a Nov. 12 Merrill Lynch appearance to $135,000 for an April 16 visit to Goldman Sachs, according to his disclosure form. Summers reported donating two fees totaling $70,000, including the payment from Merrill Lynch, to charity.
Is it any wonder that the investment class who brought us this Great Recession and blow up of the U.S. financial system is getting off Scot-free with taxpayer bailouts? Larry Summers who brought us the repeal of Glass-Steagal. Tim Geithner who brought us TARP, the original $700 billion bailout.
The point is that there are fundamental problems with what is considered economic activity that delivers real value. Are creatures of Wall Street the right folks to be deciding what a new economic playing field should look like? For instance, what limits should there be on securitization? What should be allowed to be securitized? Should insurance companies be allowed to sell insurance but not call it insurance so it’s not regulated? How much is too much leverage? Etc.
We know what Wall Street’s answers are to these questions. We know that Summers and Geithner are tools of Wall Street. So, we know with them as our economic brain trust we’re fucked — unless of course we’re trading, banking or insuring.
Mexico Shows Gratitude to U.S. by Forcing Job Losses in Ohio
Does anyone else feel like we’re all getting AIG’d? Lately, it seems like every time Uncle Sam opens his wallet to help out some struggling member of the family, that member of the family forgets to say thank-you. Or, worse yet, it’s like catching a trusted friend or relative stealing from you to go out and get high.
From the Columbus Dispatch this morning:
For 1,400 employees of a Chillicothe paper mill, there couldn’t be a worse time to become caught up in an international trade fight.
The plant on S. Paint Street generates $338 million in annual sales of carbonless paper, a sizable chunk of which is bought by Mexican customers.
But just a couple of months after the economic slump sparked layoffs of about 50 people there, a new threat has emerged: a 10 percent tariff slapped on imports of U.S. carbonless paper by the government of Mexico. It’s retaliation for Congress’ shutting down a pilot program allowing Mexican trucks to operate in the United States.
The Dispatch further reports that the Mexican carbonless paper tariff is just one of many affecting about $2.4 billion in U.S. commercial activity with Mexico. Just last week, President Barack Obama talked about the $700 million in aid the U.S. is pledging to Mexico this year to help their central government in its fight against drug cartels.
When do we start attaching strings to the public’s money being invested in everything from bank bailouts to foreign countries? Also last week, the Obama Administration announced its support for an aid package to Pakistan that would send $1.5 billion a year there, each year for five years. The same week, we get more confirmation that the Pakistani military intelligence force, ISI, has been aiding and abetting the Taliban and al-Qaeda organizations we’ve been at war with for seven years.
This may sound like the rantings of a guy who wishes we weren’t investing public funds anywhere. Actually, I’m glad we’re amping up our efforts to help the Mexicans, their problems are spilling over into our country. I’m glad we’re willing to help a country like Pakistan, I just don’t want to see more good money go after bad. I want to see accountability and outcomes for the taxpayer money spent here and abroad. I don’t want to give a dime in aid to anyone, any entity or any country who will turn around and bite the hand that feeds. It’s that simple.
My hypersensitivity to government outlays for all manner of bailouts and aid is a direct result of the U.S. financial crisis. If you count “guarantees” made by the Federal Reserve, we are trillions of dollars down the rabbit hole with Wall Street and their ilk. In all of this economic mess can anyone point to one politician or captain of finance who has taken accountability?
If we’re not creating a new program to keep the well-heeled investors on Wall Street whole, we’re shoveling money at countries like Pakistan and Mexico who give us the back of their hand. This makes me sick as I read about U.S. factory workers getting pink slips.
Video: Geithner Responds to Criticism by Krugman, Others About Taxpayer ‘Cash for Trash’
Full Text: Treasury Secy Timothy Geithner Testimony on Financial System Regulation, House Financial Services Committee
(Source: U.S. Dept. of the Treasury)
Treasury Secretary Tim Geithner Written Testimony House Financial Services Committee Hearing
Introduction
Thank you Chairman Frank, Ranking Member Bachus, and other members of the Committee. I appreciate the opportunity to testify about the critical topic of financial regulatory reform.
Over the past 18 months, we have faced the most severe global financial crisis in generations. Some of the world’s largest financial institutions have failed. Equity and real estate prices have fallen sharply, eroding the value of our savings. The supply of credit has tightened dramatically. Confidence in the overall financial system, in the protections it is supposed to afford for investors and consumers, has eroded. These financial pressures have intensified the recession now underway around the world.
