A formerly famous and now mostly forgotten poet of nonsense verse once said: "There are known knowns. There are things we know that we know. There are known unknowns....there are also unknown unknowns."
That was, of course, Donald Rumsfeld, but it doesn't sound too different from your average briefing/Congressional testimony/interview by Timothy Geithner. Besides being awash in toxic paper, credit default swaps, and collateralized debt obligations, we seem to be drowning in unknowns. Only, I get the sense that there are fewer unknowns than we're being told.
While we're rewarding the risk-taking shareholders of various zombie banks -- not to mention the mysterious, unconfirmed counterparties to AIG's serial recklessness -- how about rewarding the taxpayers, if not with an actual return on our bailout investment then at least with information about what exactly is being done with our money? It's time to call in all the unknowns.
Instead, we're greeted with a wall of manufactured complexity by the people whose job it is to make known unknowns into known knowns. There is nothing complex about the way CEOs like John Thain, Ed Liddy, Lloyd Blankfein, John Mack, Vikram Pandit, and Ken Lewis turned bailout billions into Wall Street bonus money -- and no justification for keeping taxpayers in the dark about the giveaways (Vanity Fair's Michael Shnayerson breaks down the jaw-dropping and blood-boiling numbers).
Which brings us to the holy temple of unknown unknowns -- CNBC. The financial channel's Erin Burnett (Street Signs, Squawk on the Street) was on Real Time with Bill Maher on Friday night, suddenly seeing all kinds of complexity, nuance, and ambiguity in what can be known and not known about the economic crisis. Does the government know more than they're telling us, asked Bill.
"I don't think they know," said Burnett. "I don't think anybody knows."
And: "I don't even know that the CEOs themselves know."
And: "Tim Geithner may know more than most, but no, he doesn't know."
And as for whether the financial geniuses at CNBC should have known something:
"It's easy to say [there's] a bubble, but you don't know when it's gonna burst. And I think that the question of timing and magnitude, nobody got. That wasn't just a CNBC pundit thing, that was any expert out there." I guess she missed experts like Roubini and Taleb.
And I certainly don't remember that kind of circumspection in the run up to the meltdown. For a look at what the CNBC sages thought they knew, and how wrong they were, there is, of course, Jon Stewart's already legendary evisceration.
As Stewart shows, the essential truth of what went on is really quite simple. Using complexity as a cover for accountability has a long historical track record of ending in disaster.
"The most dangerous thing in any economic crisis is denial," writes MIT professor Simon Johnson, a former official at the IMF, where he specialized in dealing with banking crises around the world. He's become one of the leaders of the camp arguing that the administration needs to admit the scope of the banking problem and deal with it sooner (wildly expensive) rather than later (insanely and unsustainably expensive). While "the degree of denial in the United States has fallen dramatically," Johnson writes, "there is one major aspect of denial still remaining: the scale and nature of our banking difficulties."
(Johnson, by the way, is doing his part to get rid of unknowns at his blog Baseline Scenario, which includes a terrific primer on the financial crisis.)
Johnson's insights mirror those of Paul Krugman, who writes that "officials still aren't willing to face the facts. They don't want to face up to the dire state of major financial institutions because it's very hard to rescue an essentially insolvent bank without, at least temporarily, taking it over." Not coming clean and doing what needs to be done, adds Krugman, "could result in an economy that sputters along, not for months or years, but for a decade or more."
Speaking of nationalization, CNBC's Burnett told Maher, "Nobody wants it on the left, nobody wants it on the right" -- even as calls for it continue to come from both the left and the right, demonstrating once again how obsolete that way of looking at the world is becoming. America's Business Channel, indeed.
The list of knowable unknowns that we still don't know about includes the final destination of the taxpayer money the government keeps funneling to AIG. The Wall Street Journal reports that around $50 billion of the $173 billion in bailout funds given to the insurance behemoth has gone to pay off financial institutions that had insured their wildly irresponsible credit default swaps with AIG.
So who, exactly, has our money -- and why don't we know? AIG CEO Ed Liddy prefers not to say. Same with the Fed, which refused a congressional request for the names of AIG's derivative counterparties. According to unnamed sources, the list includes Goldman Sachs, Merrill Lynch/Bank of America, Morgan Stanley, and Deutsche Bank.
It's worth noting that, thanks to the industry-written 2005 Bankruptcy Bill, derivatives claims are not stayed in bankruptcy -- so the financial institutions that gambled and lost would nevertheless be the first ones paid off. Isn't gaming the system fun?
The stimulus package -- and the media's coverage of it -- has also been a hotbed of known unknowns. Or, if you prefer, unreported knowns.
According to a Media Matters study of 59 network news broadcasts about the stimulus in the three weeks prior to the vote, only three mentioned concerns that the package was inadequate -- even though many economists believed it was not big enough to do the job. Another known known treated like an unknown when we most needed to know. And now, of course, we're already getting reports that the bill was, indeed, too small.
I'm not saying that everything about this crisis is knowable -- far from it. But there are a number of very simple truths that are being hidden behind a smokescreen of complexity and unknowability.
It doesn't take a Ph.D. in economics to know that you can't have CEOs whose companies have received billions in bailout funds going to court and threatening to sue employees to keep the public from knowing which executives pocketed millions in bonuses -- and you can't have them pretending that no bailout money was used to pay said bonuses.
You can't have insolvent banks pretending that the problem is one of liquidity, and then using taxpayer money to protect their balance sheets instead of lending money to credit-worthy businesses and consumers.
And, ultimately, you can't allow the same people who were part of the problem to be part of the solution. There is absolutely no way on earth that the same flawed thinking that got us into this mess will ever get us out of it. We need to clean house, taking the steering wheel away from the executives and the compliant boards that steered us over the economic cliff. They didn't get it then; they still don't get it now (see handing out bonuses, hosting spa retreats, redecorating, and throwing lavish parties while America teeters on the verge of economic collapse).
That is something we all know that we know -- even Tim Geithner and the experts at CNBC.
We are hearing there are no strings or conditions whatsoever on these outrageous bonuses, except the player be breathing at the end of the year!!? Even if the conmpany fails? That truly is bad business management , and if I were a stock holder I would push for stock holder revolt and litigation to protect my investment from capricious, self-serving misuse of my money.
But we know bonuses are not deferred salary because at bonus time, there is a high level of nervousness in the ranks of traders, brokers, bank execs, etc...because these bonuses are pegged to performance and are revealed in a context of secrecy because, in worst case but still possible, they might not be handed out at all!!.
Seems what we are really talking about is DEFERRED SALARY instead of "bonus" . And If the banks balk at "deferred", because "deferred" MEANS obligated salary, then we are back to defining bonus as a CONDITIONAL on something....so "bonuses" are NOT WATER-TIGHT , they are subject to the ups and downs of business. So QED, Mr Geitner, go get em.
It's absurd that, $2 trillion for the bad bank plus the other $10.2 trillion already committed to various federal bailout efforts, is enough to pay off 100% of the $12.2 trillion of all existing mortgage debt on 1-4 unit U.S. residential properties, or give $44,600 to every American resident over age 18.
An alternative "good government bank" solution, fair to all citizens, quickly rescues the housing market, mortgage borrowers, lenders and the economy all at once, replaces the $10.2 trilllion of all federal bailout commitments to date with one $4.7 trillion program, and is virtually guaranteed to make money for taxpayers while reducing the deficit, is The AllStreets Bailout Plan, detailed at www.themortgagenews.info.
And people think corporations are somehow better than government? At least with government, you get a little bit of transparency and insight. You can get the info you need when it comes to government, because you have the option of voting the suckers out otherwise. With corporations, they can bend the same labor laws that protect an employee's privacy to do whatever they want. Like what they're doing now. Invoking Krugman's name over and over isn't going to solve the problem. It's going to take something a little bit more extreme than demanding transparency.
Take a Lesson from the disaster of the Titantic... while thousands of regular joe's and jane's drowned ... - many wealthy people paid off the stewards to be allowed into the first boats - which were lowered with their luggage and their families.. and were only half full at that...and they sat out there and LET the rest of humanity drown ... this Lesson shows us what Money can do ... you, me, John and Jane Q. American can drown... but Big Money will survive - NO MATTER WHAT YOU SAY about "fairness" and "responsibility" - nothing has changed about Corporate America/Big Money since April 12, 1912.
The banks are essentially kaput yet acting as if entitled to the bailouts and carving bonuses out as if nothing has happened. The bank CEOs are colluding and bullying Mr. Geitner like he is a junior go-fer. Geitner at best comes off as a fresh-faced kid, Where is Mr. Geitners backbone and, supposed, professional foresight in all this?
PS: The paying out of bonuses earlier than their normal payout date to make it appear the bonuses are acts prior to bailout, is transparent deception and should be treated as crimes. What is going on with Geitner, IRS, SEC, Obama ?
It's just not as easy to get transparency out of a corporation as it is to get out of a government. At least with a government, you can vote out the guys who are against doing things in the open. You can't do that with corporations, in fact, the folks (shareholders) who have the power to shake up a board of directors usually have a lot of incentive NOT to do so.
While it could be that the so-called "fix" would do the job--it depends on people doing the right thing. And doing it without accountability. Apparently that isn't going to work THIS year and with THIS administration either. How long it takes the president to discover this simple truth is the next "unknowable", apparently. I long for his announcement that he's replacing an insider with an outsider, like Barney Frank or Bernie Sanders. It's not that there is a shortage of talented people willing to ask hard questions. It IS that they have a hard time getting these jobs, for some "unknowable" reason.
I laughed so hard last night when Maher said the Obama Admin should replace Geithner with an "actual deer caught in the headlights" and showed a picture of a wided eyed Geithner then a picture of a deer with animated eyes caught in the headlights.
I laughed so hard I missed the rest of the show. Will have to watch the end of it later.
Yeah, simple, kinda stupid - but kinda right on and makes me laugh to keep from crying..
First, did anyone really believe the mortgages we were letting, the $150 dollar a barrel oil and the wild west banking we the people allowed to emerge could all co-exist? We knew we were getting taken for a ride and we went along. I won't do it again.
Second, did we engage our leaders? Sixteen pages of comments on this article. Many are insightful get at the issues and clearly articulate what we need our leaders to do. How many of these folks also took time to write their congressman or senator? I hope a lot did.
The government, the press and business still derive their power from our votes, our consumption and our money. We can fix this if we want to. Get mad, get forgiving, get what ever, but get busy.
Yes I wrote letters, signed petitions, looked for information. But ultimately, I don't have tons of money, so who's going to listen?
It's been a pay to play operation for a long time.
Maybe as long as 1776?
We need TRUTH AND RECONCILIATION.
If everyone stays in denial, the level of trust in our government and institutions will continue to decline, and fragmentation and dysfunction will continue to increase.
When some one asked "what is he going to change?", they were booed andh@rr@ssed.
These politicians think that their voters gave them license to do whatever with no accountability. This gov't knows the people that put them in power will not hold them accountable; they are easily distracted by one politician yelling "its Pres Bush's fault. Their voters will take up the cry and forget their original problems.
Politicians gained from this man, money went to Washington, it will never be found.