Economic Darwinism

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.

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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.

Geithner’s Plan: Initial Thoughts

Posted in Action, America, Bailout, Bernanke, Geithner, Greenspan, Obama, Protest by Economic Darwinism on March 23, 2009

Here are my initial thoughts while they are still fresh. From the Wall Street Journal:

No crisis like this has a simple or single cause, but as a nation we borrowed too much and let our financial system take on irresponsible levels of risk. Those decisions have caused enormous suffering, and much of the damage has fallen on ordinary Americans and small-business owners who were careful and responsible. This is fundamentally unfair, and Americans are justifiably angry and frustrated.

So far so good. But why did we borrow too much? Because we could. Why could we? Because the Fed held rates too low on the short end and oil exporting countries and Asian savers (supposedly) kept longer maturity rates anchored. When he says “we borrowed to much”, he must be referring to his predecessors at the Treasury as well as the Fed.

The depth of public anger and the gravity of this crisis require that every policy we take be held to the most serious test: whether it gets our financial system back to the business of providing credit to working families and viable businesses, and helps prevent future crises.

Hold on one second. Working families and viable businesses do have access to credit. Just not at ridiculously unreasonably low yields that do not incorporate risk premia. Anyone who can put 20% down payment on a house should have no problem getting a mortgage even today. Businesses that need a loan may need to pay higher rates that are dependent on what the lender perceives the risk to be. That is how it should be. What he seems to be saying is that we want to give away free credit as if risk premia is a thing of the past. That is precisely what Greenspan and Bernanke have done for the past 20 years and is a primary reason why we are in the situation we are in. I’m worried. I hope it gets better from here.

We launched a broad program to stabilize the housing market by encouraging lower mortgage rates and making it easier for millions to refinance and avoid foreclosure.

My gut is beginning to twist. You have got it wrong Mr Geithner. You are not “stabilizing the housing market”, you are using taxpayer money to keep house prices artificially inflated and out of reach of responsible people who chose not to purchase because it was obvious to them house prices were ridiculously high. Now those same people are subsidizing your flawed ideas. Someone please save us from you and your cronies.

By providing confidence that banks will have a sufficient level of capital even if the outlook is worse than expected, more credit will be available to the economy at lower interest rates today — making it less likely that the more negative economy they fear will take place.

Why are lower interest rates the objective? Interest rates can be decomposed roughly into a primary “risk free” rate, a “credit risk” premium, and “inflation” premium. By keeping rates low, which of these are you ignoring? You are already manipulating the “risk free” component through quantitative easing and now you are trying to manipulate the “credit risk” component. That credit risk component is critical for the healthy functioning of the credit markets. Without it, you are just going to create another bubble. You are not even thinking about inflation risk. Sorry if I seem to be losing my patience, but I am.

Just this month, we saw a 30% increase in refinancing of mortgages, which means millions of Americans are taking advantage of the lower rates.

And you are also seeing another spike in borrowers who fail to even make their first mortgage payments. Refinancing mortgages at low rates completely ignores credit and inflation risk (you will learn about that soon enough). Mortgage rates should not be artificially lowered. If anything, you should reduce the principal and face the reality that home prices are unsustainably inflated. Oh wait. You cannot do that because principal reductions would impact the senior tranches of those CDOs your friends on Wall Street own so much of. What was I thinking?

This is good for homeowners, and it’s good for the economy.

That may or may not be, I think not, but those that will benefit with absolute certainty are the big banks and hedge funds. Nice try.

The new joint lending program with the Federal Reserve led to almost $9 billion of new securitizations last week, more than in the last four months combined.

Please someone help us. President Obama. Please. Help us. The last thing the Federal Reserve should be doing is encouraging more securitizations. Securitizations are a massive sink hole of economic health. It enriches the middle man and has the potential to lead to irresponsible lending and credit bubbles. Imagine that. Please consider going back to the good old days of responsible banking, where loans stay with the lender. If you ask one of your advisers whether securitizations are detrimental, they are likely going to say “No. Of course not.” Once they say “No” ask them, “Did you foresee this crisis?” If they say “Yes” and can verify it, then perhaps you should listen to them. Otherwise, take it from me. Securitization is not something the Fed should be encouraging right now.

However, the financial system as a whole is still working against recovery.

Maybe I’m just upset now and automatically disagreeing with everything you say, but I even disagree with this statement. What if it is you that are working against recovery? What if the markets are trying to find a sustainable equilibrium? What if markets are actually correcting themselves and prices should be lower? When you artificially try to keep rates unsustainably low and consequently try to keep prices artificially high, maybe it is you that is working against recovery. Think about that.

Market prices for many assets held by financial institutions — so-called legacy assets — are either uncertain or depressed.

No. No. No. If you want a market price, there is a certain way to get it. Try to sell it. The price you get is the market price. What does it even mean for a market price to be depressed? Based on what? If anyone is depressed, it is me after reading this. President Obama. I beg you. Help us. Get rid of these people.

With these pressures at work on bank balance sheets, credit remains a scarce commodity, and credit that is available carries a high cost for borrowers.

I would say the credit that is available carries an appropriately high cost due to the risk involved with lending in this environment. That is as it should be and trying to change that is unnatural.

The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors.

Who do you think you are trying to fool? My goodness! The FDIC is begging for money. Where are they going to get it from? You of course. The Federal Reserve is quickly turning into a sovereign wealth fund. The money is coming from you. And you are us, remember? The capital is coming from taxpayers who had nothing to do with this mess. I’m sure they will be happy to learn about that. Believe me, I will do what I can to inform them.

These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.

That is wonderful. You are going to raid pension funds now. If you are a retiring baby boomer, all I can say is too bad for you. Sorry mom! I hope pension funds learned their lesson to stay away from structured products. If you do not understand something, do not invest in it. Pension funds, for your own sake and for those who depend on you, please do not participate in this monster.

Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.

Curioser and curioser. What rabbit hole are you living in? How can you say that with a straight face? Of course the government is going to end up overpaying for these assets. Hopeless.

The new Public-Private Investment Program will initially provide financing for $500 billion with the potential to expand up to $1 trillion over time, which is a substantial share of real-estate related assets originated before the recession that are now clogging our financial system. Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets.

By creating a market that does not exist now, you are playing Market God and unnaturally selecting those who will survive and those who do not. Maybe there is a good reason the market does not exist now. Maybe the market should not exist. The market sets asset values, not you. Let the market continue to dictate prices. If the markets says the asset values are lower than you think they should be, so be it. Who do you think you are?

The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury.

It will also allow banks to throw hail Mary passes with taxpayer dollars.

The Public-Private Investment Program is better for the taxpayer than having the government alone directly purchase the assets from banks that are still operating and assume a larger share of the losses.

Are those the only two options? Whatever happened to Pre-Privatization or Receivership or whatever you want to call it? This entire farce is insulting.

Simply hoping for banks to work these assets off over time risks prolonging the crisis in a repeat of the Japanese experience.

Has anyone actually proposed “hoping banks … work these assets off over time”? I would have some nice words for such a person. Don’t you see that your proposal will have the same result as the Japanese experience? You are artificially propping up insolvent institutions with special funds. The outcome will be the same. Let them perish and level the playing field so that healthier species can replace them.

Moving forward, we as a nation must work together to strike the right balance between our need to promote the public trust and using taxpayer money prudently to strengthen the financial system, while also ensuring the trust of those market participants who we need to do their part to get credit flowing to working families and businesses — large and small — across this nation.

I believe he is sincere here. I believe that Tim Geithner may not actually be sinister, but hell is full of people with good intentions. This proposal is a colossal mistake and should be rejected. If President Obama will not see it, then I hope the fury taking root across this country will force Congress to do something to stop this debacle.

We have already seen that where our government has provided support and financing, credit is more available at lower costs.

What makes you think this should be the motivation? Credit at unsustainably low costs was the cause of this mess. I fail to see how it will get us out of it.

Our nation deserves better choices than, on one hand, accepting the catastrophic damage caused by a failure like Lehman Brothers

Do you really believe this? I mean, really? I suppose you do, which is scary. Scary!  There was no catastrophic damage caused by Lehman Brother’s failure. If anything good has happened to date, it is that Lehman and Bear Stearns failed. The damage was there already done. The disease (of excess credit) was already coursing through the veins of the entire financial system. The death of one organ did not cause the damage. The death of one organ was a symptom of the disease. Purging these decaying organs was necessary to prevent gangrene from setting in. What you are suggesting is analogous to an embalming. Konnichiwa zombi ginkou!

In conclusion…

I am extremely disappointed.

The common theme and the common error throughout Geithner’s proposal is that credit is too expensive, rates are too high, and asset values are too depressed. The reality is that asset values are what they are. If no one wants an asset, its price goes down until it becomes attractive enough to reconsider. Throwing billions of dollars at unattractive assets with the purpose of artificially inflating their price is completely irresponsible and wasteful on a grand scale.

America, you need to care about this. You are surely facing your own problems like we all are and I understand the last thing you want to think about is some yahoos in Washington D.C., but these guys are hurting you. They are hurting your children and more than likely they are hurting your grandchildren. Both born and unborn. Take notice and if you are as upset about this as I am, then do something. Let your representatives know how unhappy you are. At this point, I think they are the only ones who can put a road block down before this train leaves the station.