In the time since T.A.R.P. was enacted, there has been a lot of debate over how the government has done. Some of this debate, obviously, is difficult to truly judge -- what would have happened without T.A.R.P.? No one knows. What if we required different things of T.A.R.P. banks at the onset? No one knows.
However, while we can't decisively compare outcomes of choices that were made to alternative choices (certainly a double edged sword in a political debate), we can ask why certain decisions haven't even been tackled. In fact, there seems to be a huge deficiency in tackling very basic issues! Is there a legitimate reason to have not even proposed a solution to institutions being and/or becoming "too big to fail?" I can't think of one. Let's ask some of these questions.
1. How have we fixed the broken incentives at banks?
If we're being honest, the flash point of the public debate has always been compensation. And, by the way, not incorrectly. Consider this: the argument has always been that we need to honor contracts and that saving the banks saved us from a worse fate.
I generally buy into these arguments. However, how is it not fair to say to someone, "If we didn't step in and save your firm all the stock in it you own would have been worthless forever and you would have been out of a job. We saved your firm, but on the condition that you were paid no more than $250,000 while we own it ... Is that not more than the zero (even less, counting the devaluing of your prior stock compensation) you would have received without us?"
This reasoning is perfectly consistent, but instead we're told that that this "talent" (the audacity of that term, referring to people who were at the most broken institutions, is tantamount to lying and laughing at taxpayers at the same time) needs to paid millions or they will go elsewhere. I'll deal with this argument in more depth later (coming attraction: What have we done about institutions being "too big to fail?"). However, gently putting aside this argument (for a later thrashing) still provides us with a myriad of criticisms we can level at the administration for being totally incompetent when it comes to ensuring these sorts of problems don't occur again.
Now, as an astute reader of the news, you're probably wondering, "Hasn't the pay czar helped with this problem?" Well, I'll let the WSJ explain why you're misinformed:
Already, Citigroup Inc. is telling employees the net impact of Mr. Feinberg's rulings will be minimal because the cut salary will be shifted from cash to longer-term stock grants, said people familiar with the matter. (Emphasis mine.)
Whew! Thank goodness we're getting tough on the banks that were reckless! And then, it turns out Mr. Feinberg did the banks the favor of removing the risk from a large portion of their compensation: he boosted base salaries at these firms, fearing top employees might leave (I also fear a leviathan will crawl onto land and end life as we know it). For those unfamiliar with how Wall St. compensation works, the variable portion that can be cut on a whim without recourse is the bonus--by increasing the salaries, he increased the money that is guaranteed.
Regardless of the aforementioned actions, we still don't have a good answer on how firms will tie their own fortunes, in the long term, to that of their employees. Why won't a trader at Bank of America take a big risk hoping for a big payout? What recourse will shareholders and other stakeholders have when decisions made years ago cause problems today? None of these issues have been addressed on a systemic level. Nothing has been innovated to fix these problems and no action on the part of the government has dealt with excessive risk taking by individuals within the institutions that are now their wards. Although, its fine, I'm sure none of the people Mr. Feinberg is trying so hard to retain would ever make bad decisions that could put a massive financial institution in peril. Which leads me to...
2. What have we done about "Too Big To Fail?"
The one thing everyone seems to agree on is that institutions that are "too big to fail" are also "too big to exist." Not only has there not been any movement on solving this problem, but there isn't even a hint of a plan for the institutions that currently fall into this category.
These institutions need to be gutted, broken up, and sold. Instead, they are allowed to limp along and do whatever they can to continue to exist. For example, the argument about needing to pay employees large amounts of money so they won't go to other institutions is a symptom of this problem. Would these firms need to pay so much if they were stable? Why do we want people who can generate revenue sitting at a firm where they won't have capital to use? And, if they are given capital to use, is this how we want to risk taxpayer money, ensuring that star employees at failed institutions can take enough risk to justify their pay?
There's an extra layer to the problem as well, management is out of options. If you back an animal into a corner, it just attacks because it needs to get out of the corner to survive. A comparison, I believe, is apt. Now that the government has declared to the market that these firms are backed by the full faith and credit of the U.S. government, they have just facilitated more risk-taking. As a matter of fact, wasn't this why the government hand-picked replacements at A.I.G. and forced a management change? If you keep the old management, the incentives are for them to try to dig themselves out of the hole, and now they have an implicit government guarantee to help them take even more risk ("Hey, we're backed by the government! You know that it's not going anywhere!")
Further, why should any institutions slow down its own growth? History will dictate that, once a firm is large enough, it has to be saved--by continuing to pay millions and keep management, you're giving no disincentive for future firms. The government needs to put stiff rules in place that will prevent institutions from getting too big, and breakup the ones that exist now. Of course, everyone else agrees that's a good idea as well...
3. What is the administration's exit strategy... for T.A.R.P. banks?!
I know in other realms people tend to harp on the lack of an "exit strategy" a lot. Why not with the banks? If what we've seen actually occur is any indication, there can't possibly be a plan here, and that's not just disappointing, its dangerous.
If private industry has so much to teach us, according to the critics of "public industry," then we should take a play out that book and take aggressive action to get our investment recouped. Changing management, selling parts of these firms, and merging with competitors should, in essence, be forced upon these institutions. Indeed, this has already begun to happen organically at some institutions (think Ken Lewis and Bank of America).
I do not, however, take this non-forced action as a positive development, but a large, looming omen of bad things to come: if an investment firm purchased a distressed company and then waited around, without interfering, hoping that company would right itself... Well, I can't imagine their investors being too happy about their "buy and prey" investment strategy. In fact, I would say they were negligent, in the event anything went wrong--to have control and not exercise it is a tacit endorsement of the current course of action.
Dear John Thain writes the anonymous blog by the same name. His experience in the financial services industry includes extensive time in trading and working with securitized products. He is anonymous so that he can continue to provide an untainted insider's perspective and expertise on a myriad of topics.
Follow Dear John Thain on Twitter: www.twitter.com/@dearjohnthain
Cristina Page: Peace and Persuasion
Obama's goal seems to be to appeal to a reasonable group that can talk to, rather than past, each other about abortion. If he's going to succeed, he has to confront those who perceive common ground as a threat.
Sen. Bernie Sanders: Too Big To Fail - Too Big To Exist
If any of the four largest financial institutions were to get into major trouble again, taxpayers would be on the hook for another massive bailout. We cannot let that happen.
Robert L. Borosage: Obama's First Year: It Ain't No Crystal Staircase
Obama is a man of exceptional grace. But the grace misleads; this is a politician of intense ambition, discipline and grit. He understands and wields the power of the word.
Michael Roth: One Year Later: No Longer Time for Dancing
The euphoria of last November has turned to disappointment for many of those who celebrated so raucously on campus. This is no longer the time for dancing, but it is the time to work for progressive change.
We haven't.
2. What have we done about "Too Big To Fail?"
Allowed them to become even bigger.
Assured them that endless "bailout" funds will be at their disposal.
Given them trillions with no accountability or transparency.
3. What is the administration's exit strategy... for T.A.R.P. banks?!
Bwaa hahahaaa!! Stop! My sides are aching!! Hang on... I have to wipe the tears from my eyes...
The administration has demonstrated NO intentions whatsoever of curtailing this massive financial coup. It is going to be up to us, a massive movement of citizen opposition, to see any change from the blatant ongoing pillaging by the banks and our corporate government.
Most Americans cannot understand the complex financial instruments and trading markets that have been devised over the last couple of decades, but we do know when we are getting screwed. We may be slow to realize it, but we do now, and we want something done about it now.
This government by the people and for the people will be brought down if it betrays us.
We want satisfaction now!
http://wallstcheatsheet.com/breaking-news/a-less-than-opaque-look-at-mel-watts-motivations-to-kill-the-audit-the-fed-bill/?p=3361/
I was happy when Obama backed off the plan to directly deal with executive compensation at some banks who received tarp money and not at the majority of other banks who didn't. It was a hysterical and even if all salaries at all the tarp institutions were cut to zero, the average pay of workers at large banks wouldn't be affected much at all. Even if he were to drastically reduce average pay across the board at institutions that make some large amount in profits, how does that help anybody?
It's not fair that some people negotiated contracts last year that said they'd get payed no matter what. Fine. Can we get somebody to pay attention to the reforms being worked on by the treasury and congress right now? I've noticed that even Krugman doesn't get on here anymore. Instead, we get John Thain, writier of the influential blog, Dear John Thain.
Here it is: me first
In Europe it is: we need to do something for the greater good
This does not exclude crooks which exist there as well, as we all saw, still, the mindset is more socially oriented. You guys are trained to be on your own , so you can be controlled easier.
When is the government going to enforce the law and arrest the criminals who stole money from the Treasury?
There is another GREAT Huffington Post article, outlining what about 20,000 homeowners are doing to help themselves. They have started a petition to Congress, and it speaks on behalf the completely gagged and bound homeowner who's fate seems to be last on the list of considerations right now.
http://www.huffingtonpost.com/richar..._b_342665.html
It's really more about saving those banks. We have allowed these banks to become SO large, and to tightly woven into our government (in fact, I can rarely see a division between the two any more) then it's logical that in order to save the country that our homes are IN, we must first save the banks.
Here's the problem: They aren't going to be saved, because the SERVICERS are still FORECLOSING on homeowners and calling the OWNERS of these mortgages and saying, "Sorry Mr. Investor, we had to foreclose. After deducting our huge foreclosure fees and incentives, you now have a huge loss... Sorry about that!"
WE ARE PAYING SERVICERS TO FORECLOSE!! WHEN is the government going to UNDERSTAND THAT? INVESTORS need to demand modification, short sales, whatever it takes to keep people in their homes.
I urge you to sign the petition, not to help a homeowner necessarily, but to SAVE our country.
Link to the Huff article: http://www.huffingtonpost.com/richar..._b_342665.html
So it worked just as Bush and Obama intended..!
Student loans are more difficult to come by.
Small business loans are now non-existent.
Business credit cards mostly cancelled, some of those companies that provided business credit cards have gone out of business themselves.
Credit card rates and consumer loan rates have soared beyond all reason.
Foreclosures have increased and increase at an increasing rate.
Home loans are very difficult to get now, were impossible until quite recently.
Millions of people have been put out of work - with millions more to come.
Some have been out of work so long the extended unemployment benefits they received have run out.
Untold increased numbers of homeless - apparent to any city dweller.
Did I mention that many millions of people are out of work and that the numbers keep getting larger?
The reason that the government is so confident about the 10% number is that so many fall off the "back side" of the unemployment roles because they've been unemployed so long - that the government conveniently and cynically stops counting them.
But, Obama, Summers, Geithner and Bernanke made darn sure that the executives at the big banks got their compensation assured. And, the taxpayers got the bill for that too.
Thank you Obama.