Economic Darwinism

I Have a Nema Nema

Posted in Economics of Contempt by Economic Darwinism on April 11, 2009

I admit to congregating towards bloggers who think about things similar to the way I do, e.g. Barry Ritholtz, Yves Smith, Calculated Risk, etc. In fact, to a large extent they’ve influenced, even molded, the way I think about things. An obvious danger of this is your ideas can become inbred and I’ve seen the unfortunate impact  intellectual inbreeding can have on creativity all too closely. That is why I am happy to have found a blogger that I can say I honestly disagree with on just about everything I’ve read so far, but I cannot seem to be able dismiss his arguments. I’ve happily just subscribed to Economics of Contempt RSS feed and you should too if you haven’t already.

I’m not exactly sure why, but this song popped into my head as I was reading some of his articles:

PS: I have a four year old daughter who is a huge Phineas and Ferb fan. Need I say more?

Jonathan Mann: Zombie Banks

Posted in Jonathan Mann, Paulson, Zombie Banks by Economic Darwinism on April 11, 2009

A great song from a great artist on a great day.

Don’t forget today is a day of demonstrations against the zombie banks: A New Way Forward.

A New Way Forward: Protests April 11

Posted in A New Way Forward, Bailout, Financial Crisis, Outrage, Protest by Economic Darwinism on April 7, 2009

A New Way Forward: Protests April 11

I don’t think they will mind my copying their page here. You can count me in.

The Idea

NATIONALIZE: Experts agree on the means — Insolvent banks that are too big to fail must incur a temporary FDIC intervention – no more blank check taxpayer handouts. (see Krugman on nationalization)

REORGANIZE: Current CEOs and board members must be removed and bonuses wiped out. The financial elite must share in the cost of what they have caused. (see Simon Johnson on reorganizing)

DECENTRALIZE: Banks must be broken up and sold back to the private market with strong, new regulatory and antitrust rules in place– new banks, managed by new people. Any bank that’s “too big to fail” means that it’s too big for a free market to function. (see Mike Lux on decentralization)

Big bankers ruined our economy and now they are gaming the political system so they can profit even more off the crisis they caused. They must be stopped.

On April 11th, 2009, the public will come out in cities across the country to express their frustration and disapproval with how our elected officials have handled the economic crisis. No one has been left unscathed; this protest is yours.

The bankers’ failure to see anything beyond short-term profit for themselves has torn this country apart and jeopardized our future. But the blame doesn’t lie only with the banks; it also lies with the U.S. government that failed to protect its citizens through regulation and oversight.

Through their blind and unconditional faith in the financial markets, the banks and the government have made us all into victims of greed gone out of control. This crisis is an opportunity for President Obama to lead the U.S. in a new direction; one that values economic growth, but protects the well-being of the public before the bank accounts of the world’s financial elite.

But, so far, the policies proposed by the Obama administration to deal with the crisis look too much like the Bush-Paulson bailouts.

At the personal level, we know that the smart thing to do with our money right now is generally the less flashy thing. Paying off our debts and saving for the future protects us from the risks we can’t afford to take in the current market. The same rules apply to the banks. This is a time for a level-headed government to step in and steer unhealthy banks away from more risky bets, and to help them stabilize in the name of economic security for America.

Nothing tells the bankers to keep on doing what they’re doing more than an endless stream of free taxpayer money. The banks know that the government considers them too big to fail; if nationalization is off the table, what incentive do they have to act in the public interest?

In a basic sense, this is a fight against corruption. Not in the sense of a quid-pro-quo (though that may be there too), but in the sense of a corrupt ideology. For the most part, the world of economists, politicians and financiers is one elite web of influence. At some point, private profit took over as the only value to consider in building an economy, and it has never subsided. This is true of the thinking from both major parties.

For example, Timothy Geithner, Obama’s Treasury Secretary and a “liberal,” was a key architect of Bush’s original bank bailout plan in his former role as Chief of the New York Reserve Bank. Under Obama, Geithner has continued to propose what sounds like more blank-check bailouts (in various disguises) and has specifically ruled out other approaches, such as temporary nationalization, because, he says, “our system will be stronger if it remains in private hands.” The necessary solutions to our economic crisis just don’t compute in the minds of the financial elite.

If our government is to take decisive action to rebuild the economy in a way that protects the public, it will require Americans to fight back against this corruption. We must organize ourselves around serious ideas to demand a new way forward or things simply will not change.

It’s not enough to patch up the current system. We need to restrict the ways that bankers can lobby and serve in the government. We need to prohibit compensation plans that encourages huge short-term risk. We have to break up any bank that’s “too big to fail” so that we can have a functional free market. We need serious reform that fixes the root causes in our political and economic system: excessive influence of banks, dangerous compensation systems, and massive consolidation that does nothing to serve the public interest. We must have an independent regulatory body that protects consumers against usury and predatory lending and shuts down any industry behavior that poses a systemic risk to our financial system.

In the same way that the bankers have manipulated politicians to act in their favor, we the people will fight for economic policies that are good for the public.

Credible experts from all over the political spectrum agree that the current bank bailouts are failing. Our blog gathers the most forward thinking thought on our economy and political situation. Prominent experts are highlighted in the blog with the best snippets of their arguments. We will be reaching out to top economists for their take on the economy and to post their arguments on this blog.

You can make the difference. Take this opportunity seriously, email your friends, find your rally and go with them.

Please find out more about what the economic experts are saying — our blog collects the most relevant info. For more information or to write in your thoughts, please go to the forum discussion.

The Rallies:

A New Way Forward is made up of national protests that will take place all over the country in major cities on April 11, 2009. This site was set up to help people and groups organize around a progressive approach to economic recovery in a ground up, localized organizing effort. People from all backgrounds will come together to influence national policy and organize their own rallies in their own city on April 11.

The site allows anyone to sign up their city for a rally and begin working out the details with other local protesters in designated forums. Though each rally will be executed differently by different groups of people, the website provides a national community that will help draw attention, support and resources to the local efforts.

We have put together a guide to organizing protests with people around your state — this guide is meant to help spread out the responsibilities. We will use all the resources available to us for organizing, publicizing, and protesting. For organizing, go to the forums. For publicizing, we recommend FaceBook, Twitter, your local message boards and libraries, reaching out to unions and churches. For protesting, we suggest keeping up to date with the national protest by getting on our email lists.

The IMF Put

Posted in Bailout, IMF, Outrage, The Baseline Scenario by Economic Darwinism on April 5, 2009

The Baseline Scenario is a fine new economics blog albeit coming at things from the perspective of “The Ivory Tower.” It is great they put their thoughts out there though because those working in the markets can help them see things from the perspective of “The Markets” (and vice versa). That’s not to say either side has all the answers, but it is always good when smart people from different backgrounds interact with a common goal.

In a recent article, Simon Johnson points to an interview where he discusses the G20’s pledge of over $1 trillion to the IMF.

simon-johnson-imf

Here are some relevant quotes with my highlights in bold:

Johnson: The idea is that IMF loans are different from the past. In the past, you got an IMF loan when you were absolutely desperate. As the UK was in the middle of the 1970s. Now, the IMF is trying to reach out to countries with very very big loans. Ok. Much bigger than before. Before you get into trouble. And the point is, that’s the time to turn your policies around. And with all respect to Gordon Brown and his ministers, they need some help right now. Your economy, the UK economy, is in big trouble. I’m not saying the IMF is the magic bullet, but I think the IMF, the G20 is saying, and the G20, of course, a force mobilized by Gordon Brown for early warnings for coming in before it is too late, the IMF is telling you, the IMF is offering, let’s say, to be part of the solution rather than part of the problem. For all countries, and Europe is the place which really needs this assistance right now.

Snow: Previously, the IMF has moved in when countries go bust. This seems to presume, in some way the IMF could be proactive. Spot trouble in the early lines, and say, right, we’re coming in.

Johnson: Well, the IMF always spots trouble early on, I can assure you. Those messages are not well received by the people in power and the IMF is not welcomed. What the G20 is trying to do, and I think this is very much an initiative from the Obama administration, is give the IMF so much money, so much financial firepower, they can actually come in and give you a really big loan, not on a zero conditions basis, but on some pretty reasonable conditions that will give you some breathing space that allow you to ride through a big housing price collapse, for example, and some fiscal adjustment you’re going to have to make. So these won’t be the tough programs of the IMF of the old days which didn’t have that much cash so they had to really force you or help you force a fast adjustment. This can be a gentler, easier IMF, different strategy, a lot more money, but you still have got to get serious about sorting out your own economic house.

Snow: Simon Johnson, thank you very much indeed for talking to us. As you’re still here, Lord Mandleson, I don’t mean to bounce you, but he did say, I mean some of it can even come here.

Mandleson: Well, I don’t think we’re going to be top of the queue for IMF resources, but I think he makes an incredibly important point here. We are de-stigmatizing going to the IMF

Snow: De-Callahan-izing.

Mandleson: Well, we’ve already heard Mexico today say they are going to draw on these reserves, these special drawing rights that are being created. Now, previously…

Snow: There is no shame going to the IMF anymore.

Mandleson: Previously, it was a bit embarrassing. It was slightly shameful to be going to the IMF. That I think is being eliminated from the new approach that is being put in place today and I think it is very very…

Snow: So there would be no shame in Gordon Brown going if it had to be done.

Mandleson: John, I don’t think we’re going to be at the top of the queue as I’ve said.

Snow: But you didn’t say we wouldn’t be in the queue, though.

Mandleson: I don’t think we’ll be in the queue either. But look, look at the seriousness of this. I mean, it’s absolutely right, in some countries in central and eastern Europe there is quite some distress. And it is true that some of the resources that are now being invested in the IMF will need to be targetted in Europe, but not Europe alone.

This is worrisome. Paulson’s Bazooka turned out not to be big enough to fix the US financial crisis, so now they are giving the IMF an ICBM. There should be stigma when getting bailed out. There should be punitive terms. Just because the IMF now has “a lot of money” doesn’t mean they should loosen their standards and loosen the terms and conditions. Just the opposite. They should treasure the new $1 trillion as if it was the last stack of ammunition remaining on the planet, as it may soon be. Easy credit was one of the primary causes of the current financial crisis and now we are about to offer easy credit on an international scale.

We need to let failed households feel the pain of over consumption, we need to let failed corporations feel the pain of overdependence on easy credit, and we need to let countries suffer for irresponsible policies. The IMF should be there, as it always has been, to impose harsh terms and conditions on any salvage mission. Just because they’ve been given a huge increase on their credit card limit does not mean they should reduce punitive lending conditions.

The Greenspan Put, became the Bernanke-Paulson Put, and when that was not good enough, we now have the IMF Put. When is it going to end?

“The Biggest Travesty of Capitalism”

Posted in Bailout, Geithner, Outrage by Economic Darwinism on April 5, 2009

[HT: The Big Picture]

One reason people have not yet become outraged by what Geithner is doing is that the entire situation is complex. Many people I know sense that they should be outraged, but do not know exactly what they should be outraged about because they do not understand it. Any little bit that can be done to help explain things is extremely welcome. The following video follows Einstein’s philosophy

Everything should be made as simple as possible, but not simpler.

It is a pretty good explanation of Geithner’s plan for toxic assets. The plan is a complete travesty and I hope the administration realizes that it is not the right thing to do before it is too late. Please have a look

Tagged with: , ,

Modern-Day American Hero: William K. Black

Posted in Financial Crisis, Geithner, Obama, Outrage, Paulson, Protest, William Black by Economic Darwinism on April 4, 2009

There are many exemplary American’s doing everything they can to expose the reality of our current financial crisis. Here, I would like to highlight William K. Black.

You must watch William Black’s recent appearance on Bill Moyers Journal:

William K. Black appearing on Bill Moyers Journal

William K. Black appearing on Bill Moyers Journal

Moyer: Why are they firing the president of GM and not firing the head of the all these banks that are involved?

Black: There are two reasons: 1.) they are 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 auto workers as you can see. They want to bash all of their contracts, but when they get to banking they say, “Oh! 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, and the cover up is…

Moyer: Cover up? That’s a serious charge. Who’s covering up?

Black: Geithner is covering up, just like Paulson did before him. Geithner is publicly saying that it is going to take two trillion, a trillion is a thousand billion, two trillion taxpayer dollars to deal with this problem. But they’re allowing all the banks to report that they are not only solvent, but fully capitalized. Both statements can’t be true. It can’t be that they need two trillion because they have massive 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 they may have succeeded.

Moyer: What do you mean?

Black: Well, Geithner 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 was a failed legacy regulator.

[snip]

Moyer: To hear you say this is unusual because you supported Barrack Obama during the campaign last year, but you’re seeming disillusioned now.

Black: Well, certainly, in the financial sphere I am. I think first the policies are substantively bad, second I think they completely lack integrity, third they violate the rule of law. This is being done, just like Secretary Paulson did it, in violation of the law. We adopted a law after the savings and loan crisis called the “Prompt Corrective Action Law” and it requires them to close these institutions and they are refusing to obey the law.

Moyer: In other words, they could have closed these banks without nationalizing them?

Black: Well, you do a receivership. Nobody… Ronald Reagan did receiverships and nobody called it nationalization.

Moyer: And that’s the law?

Black: That’s the law.

Moyer: So Paulson could have done this? Geither could do this?

Black: Not could. Was mandated.

Moyer: By the law?

Black: By the law.

Moyer: This law you’re talking about?

Black: Yes.

Moyer: What’s the reason they give for not doing it?

Black: They ignore it. And nobody calls them on it.

Moyer: Well, well, where’s congress? Where’s the press?

[snip]

Moyer: Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration with the banks are engaged in a cover up to keep us from knowing what went wrong?

Black: Absolutely.

Moyer: You are?

Black: Absolutely. Because they are scared to death. Alright. They are scared to death of a collapse. They are afraid that if they admit the truth that many of the large banks are insolvent, they think that Americans are a bunch of cowards and that we’ll run screaming to the exits and we won’t rely on deposit insurance. And by the way, you can rely on deposit insurance. And it’s foolishness. Alright. Now, it may be worse than that. You may impute more cynical motives, but I think they are sincerely just panicked about we just can’t let big banks fail. That’s wrong.

[snip]

Moyer: So how did they get away with it?

Black: I don’t know whether we’ve lost our capability of outrage or whether the cover up has been so successful that people just don’t have the facts to react to it.

[snip]

Black: Now, going forward. Get rid of the people that have caused the problems. That’s a pretty straightforward thing as well. Why would we keep CEOs and CFOs and other senior officers that have caused the problems? That’s facially nuts. That’s our current system. So stop that. The current system. We’re hiding the losses instead of trying to find out the real losses. Stop that because you need good information to make good decisions. Alright. Follow what works instead of what’s failed. Start appointing people who have records of success instead of records of failure. That would be another nice place to start. There are lots of things we can do. Even today. As late as it is. Even though they’ve had a terrible start to the administration, they could change and they could change within weeks. And by the way, the folks who are the better regulators, they’ve paid their taxes so you can get them through the vetting process quicker.

The entire interview is fantastic and potentially historic. Please go have a look.

If I could add anything to what Black had to say, I would strongly encourage everyone, including Black, to look beyond mortgages. As dire as Black makes the situation appear, this situation we find ourselves in is much worse than even that because the problems are not confined to mortgages. Every single form of debt imaginable experienced the same lax underwriting standards that were seen in mortgages, e.g. credit cards, auto loans, student loans, residential mortgages, commercial mortgages, corporate bonds and even government bonds experienced the same wreckless behavior. All forms of debt were bundled into pools and resold to pension funds, mutual funds, hedge funds, and university endowments after receiving the AAA stamp from the ratings agencies. The problem is beyond the scope of the adminstration to handles with any policy other than massive simultaneous, even globally coordinated, receivership of all major banks.