We Were Punked

Hale "Bonddad" Stewart counters the argument I made on Rachel Maddow's MSNBC show this week and that I've been making in my columns and blog postings for the better part of the last three months. He says the American people weren't deceived on the Wall Street bailout; implies that handing over a trillion-dollar no-strings-attached blank check to the financial industry was perfectly appropriate; and explicitly states that "to say we were 'punked by Wall Street' flies in the face of every available fact on the crisis."

Oddly, Bonddad then goes on to prove - arguably better than anyone else to date - that we were, in fact, punked.

Bonddad spends most of his post telling us that banking profits are down, noting that "financial stocks are down almost 70% since the summer of 2007." No argument there from me, or anyone else. He creates a straw man by suggesting that many people are claiming there was no "serious problem with the financial system that needed fixing" - nobody, not me, not even the authors of a controversial Minneapolis Fed report, claim there isn't a real financial problem. He then goes on to note that the Federal Reserve Bank's Beige Book has been saying that credit conditions were somewhat tightening before the bailout and - here's the most important part - that "loan demand was decreasing." Again, no argument there from me, or anyone else.

But that's the whole point - Americans were told we needed to give a trillion dollars of taxpayer cash, no strings attached, to Wall Street, not because huge banks saw their profit margins cut, not because financial shareholders saw their stocks lose value, but because banks had allegedly completely stopped lending to each other and to other businesses. Politicians, reporters and financial executives made the latter argument - and not the former - because they knew that while there would probably be opposition to any bailout of the size being proposed, there would be revolution-in-the-street-type outrage had they admitted the bailout was needed - and specifically structured - to preserve bank profits and the wealth of financial industry shareholders.

But as the Federal Reserve's own data shows that latter argument claiming lending had seized is simply not substantiated by fact. Indeed, nobody has been able to factually refute the very simple statement by Celent's Octavio Marenzi who said the claims by Henry Paulson and Ben Bernanke about a full-on, apocalyptic credit crisis "are flatly contradicted by the data provided by the very organizations they lead."

Now, this is not to say there hasn't been any problem of tightening credit. Nobody's saying that, and certainly not me. What I and other bailout opponents have been saying is that those who backed the bailout in its current form "were using an admittedly real [credit] problem to manufacture the perception of a full-on earth-shattering crisis." That is, they sensationalized a real problem to create the belief that if we didn't do something unfathomably (and irresponsibly) unprecedented, and without any oversight whatsoever, the world would end. Sound familiar? Of course it does. That's what happened in the lead up to the Iraq War - government leaders and the media seized on the very real problem of Saddam Hussein and sensationalized it into an "imminent threat" that required unprecedentedly destructive action.

Bonddad proves that it's the real economy that needed - and needs - the most help, not just the financial industry. Read through his post and notice how many times the stuff about decreasing loan demand is mentioned - that's it right there. Because the real economy is in crisis, loans are being sought a lot less - that is, businesses aren't expanding, they are contracting, and thus many are not looking for new loans to finance investments; and individuals aren't looking as much for new loans either. Put another way, just because demand for loans has decreased, doesn't mean loans are completely unavailable.

As the Celent report found, "overall U.S. bank lending is at its highest level ever, U.S. commercial bank lending is at record highs and growing particularly fast since May 2007...overall interbank lending is up 22 percent [and] bank lending for real estate reached a record level in October 2008." Those claims are backed up by both the Minneapolis Fed report and the NFIB report.

Celent guesses that what's going on is that lawmakers are likely "taking the situation of a handful of institutions and generalizing that to the market as a whole, incorrectly." That makes some sense, if you understand how Washington works. When the profits of huge campaign contributors like the Citigroups and the AIGs decrease, the Beltway (not surprisingly) prioritizes helping those campaign contributors preserve those profits, and therefore rationalizes handouts to those behemoths by making lots of generalizations - even if, for instance, the data at the time of the bailout suggested that the rush away from such behemoths was helping local banks. In D.C. - as we all know - the little guy doesn't matter, only the wallets of the big fat cats do.

So we were punked not by those who said there was a real credit problem - there certainly was and is a credit problem, though it's only one of many problems, and it certainly isn't a problem that justified spending a trillion dollars of no-strings-attached money in less than two weeks of deliberation. We were punked by those politicians and pundits who said what we had to do to fix the problem was not to both inject capital into the real economy (spending on infrastructure, health care, unemployment benefits, mortgage relief, etc.) and target reasonable amounts of well-overseen taxpayer cash to the specific banking sectors that required immediate aid, but instead to exclusively throw an ungodly amount of unregulated money at Wall Street while completely ignoring the real economy, and more specifically, to throw that ungodly amount of money at Wall Street with absolutely no strings attached.

That argument was not backed up by fact. It was a lie - and a lie with a motive: to make sure as much taxpayer cash as possible was given to one of the largest segments of campaign contributors, and that that cash could be used to subsidize executive pay, shareholder value, shareholder dividends bank consolidation and financial industry profits. And to date, nobody has been able to answer really simple questions that make this point as clear as possible.

As just one example, consider the fact that when aggregating what both the Treasury and Federal Reserve bank has have done, taxpayers have allocated $8 trillion to the financial industry. In a country where 18,000 people die each year because they lack health insurance (that's six 9/11's every single year), most believe it would cost about $75 billion to $100 billion a year for universal health care. So just to account for critics, let's say it costs $200 billion. How does giving $8 trillion to the financial industry save more lives, better help the economy (whose fastest growing sector is health care) and better benefit society than using that $8 trillion to finance universal health care for the next 40 years and save 720,000 American lives?* The fact that Congress didn't even ask such a simple question and simply allowed that $8 trillion to be allocated to its campaign benefactors on Wall Street means we were punked in a historic way. Or, to use Bonddad's own phrase, it means that to say we weren't punked flies in the face of every available fact.

The path forward from here is pretty obvious. As I noted in an earlier post, there are three steps to take:

1. We have to pressure, cajole, lambaste and downright humiliate Wall Street stooges on Capitol Hill who claim nothing can be done to reform the bailout and actually start working to fix the economy.

2. Before releasing the next installment of bailout money for Wall Street, Congress can add strings to that money - for instance, making sure that it is subsequently used to increase lending and not to subsidize bank profits, shareholder dividends and executive pay. If those strings aren't attached - and if the Treasury Department continues to refuse to give federal bailout regulators like Elizabeth Warren access to basic information - Congress should refuse to release the next installment of bailout money.

3. Congress can allocate some of the unspent bailout money to a robust economic recovery package focused on job-creating infrastructure and health care priorities - and Congress can pass that economic recovery package right now, rather than waiting for the next president.

* $200 billion a year multiplied by 40 years is $8 trillion dollars. 40 years multiplied by 18,000 lives a year is 720,000 lives.

Comments

[2008CaliforniaFan]

David,
I hope you check back on these posting to ask a question that no media outlet has responded too.

Yes... of course Wall Street 'punked us'. During the Election Campaign we kept hearing how it was costing us 70 Billion a month for the War in Iraq to support the War.
The only people making money off the war were the 'contractors' (specifically Haliburton )over there of which our Government/our taxes were paying them. We PAID for their companies Profits.... But how much was paid to them... Do we know how much??

And seeing as these were 'Government Contracts'... were we paying for these Military services with such rates as $600 dollar hammers as have happened in the past.
Over 8 years I am assuming that what we paid to Haliburton would be a drop in the bucket to what the contractors got.

Who has the FACTS and why have we not been told...?

[RoseMerry]

"Punked" is far too polite a word for this great feeding frenzy on the U.S. Treasury and our economy that has been going on since the Supreme Court picked George Bush as Criminal-in-Chief. But in the interest of being published, it will do.

I pray that the justice will be done.

[CaptainObvious]

Personally, I knew we were headed for trouble when the media started to debate themselves over whether they should start calling it a "rescue" rather than a "bailout".

I keep wondering what other new secret government agencies the busheviks might have created. It appears that one of them may have been the "Ministry of Truth".

[trinityfly]

While a great fan of Bondad I believe he is lost in the forest but is missing the veiw because of all those dam trees. Punked we were and punked we are still being. The cabol that runs the Bushco admin in now ringing the last possible source of wealth left in America the future taxes of our childrens children. They started this charade by dumping nearly a trillion dollars into Iraq leaving tens of billions unaccounted for and end it by foisting an apocolyptic economic myth to frighten us into giving them what may have been left of our future. The word criminal dosn't do these acts justice. The perpetrators of these crimes should be charged with treason. If convicted, all their wealth confiscated and returned to the people from which it came. Then they should be hung from the yard arm! It is time to bring out the torches and pitchforks folks!
As for the elected representives that are supposed to be looking out for our interests we have come to understand that for the most part they are looking out for themselves. As a people we must hold their feet to the fire and make sure that those who are not doing the will of the people never get reelected.
There is a litmus test for reelection ............. how did they vote to benifit the citizens of the United States of America.

Thank you David Sirota

[DuganS1]

Money has turned up unaccounted for in every war the US has ever been involved in. In fact, much less money is unaccounted for during this one relative to wars past. By injecting money into the financial system, the President, Treasury Secretary, the Fed, and congressmen from both parties were doing what they thought best for the country and American people. To think they didn't is just silly.

[onlyThis]

Then I am silly. You, sir, are incredibly naive.

[getoffmedz]

trinityfly - your suggestions let them off too easy.

The electorate voted for Bush/Cheney, twice and only the threat to their pocketbooks got voters to consider a switch.

But you make a good point. EXAMPLES MUST BE MADE.

NO MERCY.

[SovereignJohn]

I have continued to get telemarketing calls offering to loan me money. Telemarketing calls from stores offering me three year no interest purchases and direct marketing email and snail mail. So where is the credit crunch? The fact of the matter is quite simple. I'm debt free and those who aren't are maxed out of credit and they can get loans but they have no more pennies to stretch out so borrowing has decreased. The bankers saw this, saw their huge boon profits slipping away so they punked us into keeping their good times going.

Rise and Shine people, its time to wise up.

[DuganS1]

The problem was more with inter-bank loans, revolving credit loans, mortgage loans, and even corporate loans. Also, the problem isn't that people "have no more pennies to stretch." Just look at the huge record amounts of money in money market funds and how the personal savings rate has jumped over the last few months. The American consumer has money but is saving instead of spending, which medium term is a good thing as long as they don't save too much or for too long.

[onlyThis]

Where do I look for "huge record amounts of money in money market funds"? Links please. Also the savings rate has jumped from what -5% to 0%?

[NationalTreasure]

+David:

this bailout, plus the additional 2trillion that Paulson has given to Wall Street and banks, was nothing but a coverup of a Ponzi scheme writ large -- China and the Arabs and the big players on Wall Street got their losses covered by the American taxpayers -- nothing more nothing less -- Madoff is not the only crook on the Street

[AnnfromCA]

The problem seems to be that nobody knows just how bad the bad assets really are. I don't see that we were punked as much as up the creek without a good paddle right now.

[Sundialsvc4]

We haven't been punked... we have been swindled, lied to, and brazenly stolen from by "any civil officer"s.

High Crime, David.

It's a misnomer, though. Nothing at all "high" about this greasy, evil, wicked, ruthless form of crime that is practiced every day by men and women in Armani suits. Nothing at all "new" about it, either.

Why don't we try holding "any civil officer" to a much higher standard of conduct? Why don't we raise the bar, and show that we actually mean it?

Let's say that, "high crime or low crime, if you're ANY civil officer of this government, anywhere, including (but not limited to) the President and the Vice-President himself, you SHALL BE kicked out of office and bound over for prosecution."

I propose therefore that the following clause should be added to the Supreme Law of this land, to wit:

"The President, Vice President and all civil Officers of the United States, shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors."

There, that should do it, don't you think? ...

[AContrario]

>> We haven't been punked... we have been swindled, lied to, and brazenly stolen from by "any civil
officer"s.

Yeah, yeah, yeah. Wall St and Washington are the bad guys and Main Street the victim. I am not buying
it, we are all responsible at some degrees and admitting it would be a good starting for something
new.

[jbatch]

The degree of the crisis -- bad or catastrophic -- is something we should get to the bottom of eventually. Right now I' much more worried about getting a little accountability into the bail-out. What concerns me is the use that banks and their cousins are putting the money to. Looks like it's little more than supporting a lavish lifestyle.

Let's get accountability now. We can worry about whether it was a full-blown crisis later. One thing we know, it certainly is a crisis now, and the people in charge are frittering away the money. That's the proximate problem.

[yaworsja]

as a conservative libertarian, at least i am aware that this is exactly how governments have expanded their power over their citizens throughout history. it is either through fear of crisis, or convincing the people of the government's "good intentions"

not that i suspect any of you liberals will be sufficiently mugged by this reality to criticize your precious big government

[Bluedanube]

Pull the covers over your head and go back to sleep.

[sheila]

what happened was right-wing fascism, not left-wing socialism. if it were socialism, we woulda gotten the healthcare and the money would have "trickled up" to all the shareholders. since it's fascism, all the money was stolen from working people to pay off an unholy alliance of government and industry.

fascism is another kind of "big government." sounds like you approve of it, which makes you as scary and the mercenaries who have been ripping us off in this pyramid scheme. please recall who, exactly, orchestrated all of this - bush, paulson, cox and friends. they are not on our team, they are on yours.

[KOisGod]

WORD !

[yaworsja]

fascism is big government, so how is it part of the right? because they also hated communists? i know you libs scoff at Jonah Goldberg's Liberal Fascism, but its actually a pretty damn interesting book, although wrong about a lot of things. give it an honest shot.

[procrustes]

Mr Sirota, some suggested homework for a real story:

Alan Greenspan in testimony to either the Senate or Congressional committee was directly asked if running a budget surplus was good or bad. He, in his usual slippery circuitous syntax, said it was bad and went on to strongly advise adjustable rate mortgages.

That testimony, long before the crisis hit contains the meat for a real story. As backstory, while this tripe was being fed to Congress there was an entire broad and deep school of financial types screaming disaster at the tops of their keyboards. The, "who knew" argument is both pathetic and disingenuous depending who's pushing it.

Do some work and you'll have a real story--or are you too lazy?

[DuganS1]

I don't understand the point. It isn't a bad thing to run a budget deficit. It's how big the deficit is as a percent of GDP and the ability to fund and service that debt which are important. There is also nothing inherently bad about adjustable rate mortgages. It's the fact that home values went down and people became underwater and unable to refinance which is the problem.

[ceti]

I don't understand where Bonddad stands. ÌHasn't he seen that billions have flowed out of the US treasury without any accountability, a fact that even Paulson has admitted? We were punked in Iraq -- billions have been embezzled from the reconstruction effort, just as Afghanistan is another corrupt cesspool. It seems almost criminal to be shilling for Wall Street, where Madoff's ponzi scheme is only the tip of the iceberg.

[jbatch]

Bondad isn't talking about the use of the bail-out money -- he's talking about the roots and indicators of the credit crisis. He has said often and loud that we need to make sure the banks are accountable for how they use the money.

[John51]

No one wants to see massive unemployment but our government is even more fearful of the prospect. Could you imagine 25% of Americans out of work with nothing more to do than study their government and catch up on the corruption that has put them out of work. We are an educated, trained, and fairly well armed citizenry that could wage a very effective revolution given the right conditions. I have seen an increasing number of post discussing the prospect of a revolution recently and personally I hope we can change things in our government without violence. I would like to see more citizens involved in their governing and take corrective action at every level. I really believe in this movement to limit all representatives to one term by always voting out the incumbent; I think it will severely limit the massive corruption and remove the entrenched thieves calling themselves public servants. If it is necessary to actually conduct an armed revolt I hope it is well organized and not small groups of haters shooting at one another.

[Chaimirija]

I think I am in love.

Wonderful insight, John!

[peterg76]

I cannot understand why it is so hard to break out of this one-dimensional thinking. A great many people are facing material hardship and have no doubt that the economy is troubled. The "bailout" is an embezzlement and money-laundering scheme that was never intended to help anyone besides the banks.

There is no contradiction is saying (1) the crisis is real and (2) the bailout was a fraud. The two have nothing to do with each other than the fact that the financial distress was used as a cover story for the scam. (I wonder how many times they had to rehearse their story before they were able to say it with a straight face.) Since the bailout doesn't actually fix anything in the economy, that cover story is just as "valid" now as it was before.

Yes, there was a problem in the financial industry. But the fact that some mortgages lost some value was not sufficient to create a crisis. The problem was not that mortgage-based assets were suddenly worth 90% or 80% of their book value - it's that they were worth nothing because they had been fraudulent all along.

And for those who haven't figured it out yet: members of Congress were not deceived - they were the inside accomplices.

[DuganS1]

Without the bailouts, virtually all our major banks and financial institutions would be insolvent and asset values would be even lower than now and lending would be even more scarce and unemployment even higher. About the value of mortgages, the problem was that a lot of that paper was worth 20 cents or so on the dollar even though the delinquency rates were relatively low. These assets were often levered which forced the holders of the assets, the financial institutions, to get margin calls, which forced more selling bring asset values low, forcing more margin calls, pushing asset values lower, forcing more margin calls, etc. etc. The original TARP plan was to buy a lot of that paper to prop up the asset values and reduce the forced deleveraging. The loss in value of these assets "was" sufficient to create a crisis.

[peterg76]

Doing nothing and recklessly giving away money were not the only two options.

[clevelandchick]

I'm in the commercial construction industry. Banks are not releasing credit to even the cream of the crop developers in our city. Everything came to a screeching halt months ago. My company relies on urban redevelopment and rehabilitation projects and is in dire straits. If some banks don't come through on some projects soon we are done and we won't be alone.

Businesses serving the construction industry are dropping like flies. My brother in law is CEO of an A/E firm and he had to layoff 30% of his staff and put everyone on 32 hour work weeks so they could keep their benefits and the company could stay afloat.

My brother in Chicago told me it's basically the same there. I listened to an NPR show a month ago about the last crane leaving the Miami sky line.

The banks and financial institutions who took this money are holding onto it or buying out other banks and laying off more workers only making matters worse. PNC, a bank that did not need a bailout was given TARP money to take out National City, they'll be letting go of at least 50% of the local workforce. Supposedly Bank of America is buying Amtrust...same damn thing. Yet none of these banks are opening up credit to anyone for any reason.

David - you are damn right we were punked and I have a feeling the prank's not over by a long shot.

[DuganS1]

You can't blame banks for taking less risk. We're barely off the peak of the commercial construction cycle and values are projected to go down and many loans in that sector are high risk. A few Reits are already trying to unload assets (with little success) and are close to bankruptcy. Actually banks are probably doing what they should be doing, not making more risky loans. Unfortunately, many have probably reigned in too far and some just don't have liquidity available. Consolidation of banks is a good thing by the way. The weak financial entities need to be gobbled up by the stronger ones and the non-performing assets need to be disposed of and new capital raised. This is how the system flushes itself out and heals.

[peterg76]

This is satire, right?