Bailout on The Huffington Post

Geithner Interviewed By Bloomberg: Says Goldman Would Have Failed, Dismisses Tobin Tax (VIDEO)

2009-12-05T17:05:15Z

During an interview this week on Bloomberg's Political Capital with Al Hunt, Treasury Secretary Timothy Geithner disputed claims made by Goldman Sachs's CEO Lloyd Blankfein in Vanity Fair, proclaiming that the company would have survived without the government's $12.9 billion in bailout money. Geithner disagreed:

HUNT: You were the head of the New York Fed, right in the middle of the crisis a little over a year ago. Some Goldman Sachs executives have recently said their firm would have been okay without the Federal assistance and the Federal Reserve and others last year. Is that your view?

GEITHNER: My view is this.

HUNT: Did Goldman Sachs need the Federal government fourteen months ago?

GEITHNER: The entire U.S. financial system and all the major firms in the country and even small banks across the country were at that moment at the middle of a classic run - a classic bank run.

HUNT: So they would have been at risk (inaudible)?

GEITHNER: I think the system was at risk and the big institutions were not - none of them would have survived a situation in which we had let that fire try to burn itself out.

During the interview, Geithner also stated that unused TARP money could be used to invest in "job creation" and "our long term fiscal challenges." Geithner declined to say how much money of the more than $200 billion left over from the program he wanted to be put towards either of those goals:

HUNT: Let me ask one more. The White House did say today that Gibbs - Robert Gibbs said that you wanted to use some TARP funds for specific job creation. How much money and how many jobs are you talking about?

GEITHNER: We're going to lay out in some more detail in the next couple days a range of important things about the TARP. We're going to explain that we're going to have substantial savings, that we're going to have very substantial resources we can make available to support not just the immediate priorities the country faces in spurring investment in job creation, but also to meet our long term fiscal -

HUNT: Right.

GEITHNER: - challenges. Those resources are going to be very, very substantial because we have been very successful in helping to stabilize the financial system, bring the cost of credit down, open up these markets at much, much lower cost than anybody anticipated.

When Geithner was asked about the Tobin tax, a tax that would be levied on financial transactions, he dismissed it (though Hunt notes comments by Nancy Pelosi earlier this week that the Treasury Secretary was now open to the idea). Bloomberg noted that Geithner was "echoing some of the banking industry's reasons for opposing a Tobin tax" when he cited the possible effects that the tax would have on smaller investors.

Watch Geithner's Interview On Political Capital:

Part 1

Part 2

Neel Kashkari: Former Bailout Czar Takes A Reclusive Turn

2009-12-04T20:24:06Z

The moon hits his stubble, which is six days old. And the sweater he hasn't changed in three or four days. His BlackBerry -- he can't kick it -- rang once today. A year ago in D.C., it buzzed every few seconds. All night, he'd roll over to its bluish glow. His Treasury Department assistant slept with hers, powered up, on her pillow.

"It's like a dream," Kashkari says, his work boots crunching pine cones. "Sometimes I think: Was it real?"

Geithner On Offense, Slams 'Irresponsibly High Bonuses'

2009-12-04T15:38:36Z

Treasury Secretary Timothy Geithner criticized the record bonuses expected to be paid by big banks this year and refuted claims by Goldman Sachs Group Inc. that it would have survived without government aid.

Goldman Bonuses Will Be Paid In Company Stock - At Least For Top Execs

2009-12-04T13:55:12Z

Top Goldman Sachs executives are this year likely to receive their annual bonus in stock rather than cash as part of a wider pay review that could affect thousands of the Wall Street bank's rank-and-file employees.

Senator To Fed Chair Bernanke: 'You Are The Definition Of Moral Hazard'

2009-12-03T12:53:37Z

This report has been updated

A few hours after Federal Reserve Chairman Ben Bernanke began a spirited defense of his much-maligned tenure leading the nation's central bank, a Republican Senator reached across the aisle to join one of the chamber's more liberal members in declaring his intention to delay Bernanke's likely confirmation.

Sen. Jim Bunning, of Kentucky, told video journalist Mike Stark that he will place a "hold" on the Bernanke's confirmation, joining Bernie Sanders, of Vermont, an Independent who caucuses with Democrats. The video was first posted on the left-leaning blog FireDogLake.

Bunning added that he and Sanders won't be the only ones to pull this procedural delaying tactic. However, unless they get 39 others to join them in opposing Bernanke, he'll likely be confirmed. It'll just take Senate Majority Leader Harry Reid (D-Nev.) a bit more time, as he'll have to round up 60 votes to bypass the "hold."

***

Federal Reserve Chairman Ben Bernanke was scolded Thursday by a group of senators who let the country's top economic official know how angry they are with what they perceive as his multiple failures both before and after the financial markets crashed.

Lead among them was Jim Bunning, a Republican from Kentucky.

The only senator to vote against Bernanke's confirmation four years ago, Bunning ripped into the Fed chair for handing out "cheap money to [his] masters on Wall Street"; referring to him as "the definition of moral hazard"; and stating flatly that it was either "incompetence or a desire to secretly funnel more money to a few select firms" that led Bernanke to not pressure then-New York Fed President Timothy Geithner to demand concessions from AIG's counterparties during the government's massive bailout last fall.

Bunning's prepared remarks are below.

Statement of Senator Jim Bunning as Prepared for Delivery
Banking, Housing, and Urban Affairs Committee
Hearing on the Nomination of Ben Bernanke
December 3, 2009

Four years ago when you came before the Senate for confirmation to be Chairman of the Federal Reserve, I was the only Senator to vote against you. In fact, I was the only Senator to even raise serious concerns about you. I opposed you because I knew you would continue the legacy of Alan Greenspan, and I was right. But I did not know how right I would be and could not begin to imagine how wrong you would be in the following four years.

The Greenspan legacy on monetary policy was breaking from the Taylor Rule to provide easy money, and thus inflate bubbles. Not only did you continue that policy when you took control of the Fed, but you supported every Greenspan rate decision when you were on the Fed earlier this decade. Sometimes you even wanted to go further and provide even more easy money than Chairman Greenspan. As recently as a letter you sent me two weeks ago, you still refuse to admit Fed actions played any role in inflating the housing bubble despite overwhelming evidence and the consensus of economists to the contrary. And in your efforts to keep filling the punch bowl, you cranked up the printing press to buy mortgage securities, Treasury securities, commercial paper, and other assets from Wall Street. Those purchases, by the way, led to some nice profits for the Wall Street banks and dealers who sold them to you, and the G.S.E. purchases seem to be illegal since the Federal Reserve Act only allows the purchase of securities backed by the government.

On consumer protection, the Greenspan policy was don't do it. You went along with his policy before you were Chairman, and continued it after you were promoted. The most glaring example is it took you two years to finally regulate subprime mortgages after Chairman Greenspan did nothing for 12 years. Even then, you only acted after pressure from Congress and after it was clear subprime mortgages were at the heart of the economic meltdown. On other consumer protection issues you only acted as the time approached for your re-nomination to be Fed Chairman.

Alan Greenspan refused to look for bubbles or try to do anything other than create them. Likewise, it is clear from your statements over the last four years that you failed to spot the housing bubble despite many warnings.

Chairman Greenspan's attitude toward regulating banks was much like his attitude toward consumer protection. Instead of close supervision of the biggest and most dangerous banks, he ignored the growing balance sheets and increasing risk. You did no better. In fact, under your watch every one of the major banks failed or would have failed if you did not bail them out.

On derivatives, Chairman Greenspan and other Clinton Administration officials attacked Brooksley Born when she dared to raise concerns about the growing risks. They succeeded in changing the law to prevent her or anyone else from effectively regulating derivatives. After taking over the Fed, you did not see any need for more substantial regulation of derivatives until it was clear that we were headed to a financial meltdown thanks in part to those products.

The Greenspan policy on transparency was talk a lot, use plenty of numbers, but say nothing. Things were so bad one TV network even tried to guess his thoughts by looking at the briefcase he carried to work. You promised Congress more transparency when you came to the job, and you promised us more transparency when you came begging for TARP. To be fair, you have published some more information than before, but those efforts are inadequate and you still refuse to provide details on the Fed's bailouts last year and on all the toxic waste you have bought.

And Chairman Greenspan sold the Fed's independence to Wall Street through the so-called "Greenspan Put". Whenever Wall Street needed a boost, Alan was there. But you went far beyond that when you bowed to the political pressures of the Bush and Obama administrations and turned the Fed into an arm of the Treasury. Under your watch, the Bernanke Put became a bailout for all large financial institutions, including many foreign banks. And you put the printing presses into overdrive to fund the government's spending and hand out cheap money to your masters on Wall Street, which they use to rake in record profits while ordinary Americans and small businesses can't even get loans for their everyday needs.

Now, I want to read you a quote: "I believe that the tools available to the banking agencies, including the ability to require adequate capital and an effective bank receivership process are sufficient to allow the agencies to minimize the systemic risks associated with large banks. Moreover, the agencies have made clear that no bank is too-big-too-fail, so that bank management, shareholders, and un-insured debt holders understand that they will not escape the consequences of excessive risk-taking. In short, although vigilance is necessary, I believe the systemic risk inherent in the banking system is well-managed and well-controlled."

That should sound familiar, since it was part of your response to a question I asked about the systemic risk of large financial institutions at your last confirmation hearing. I'm going to ask that the full question and answer be included in today's hearing record.

Now, if that statement was true and you had acted according to it, I might be supporting your nomination today. But since then, you have decided that just about every large bank, investment bank, insurance company, and even some industrial companies are too big to fail. Rather than making management, shareholders, and debt holders feel the consequences of their risk-taking, you bailed them out. In short, you are the definition of moral hazard.

Instead of taking that money and lending to consumers and cleaning up their balance sheets, the banks started to pocket record profits and pay out billions of dollars in bonuses. Because you bowed to pressure from the banks and refused to resolve them or force them to clean up their balance sheets and clean out the management, you have created zombie banks that are only enriching their traders and executives. You are repeating the mistakes of Japan in the 1990s on a much larger scale, while sowing the seeds for the next bubble. In the same letter where you refused to admit any responsibility for inflating the housing bubble, you also admitted that you do not have an exit strategy for all the money you have printed and securities you have bought. That sounds to me like you intend to keep propping up the banks for as long as they want.

Even if all that were not true, the A.I.G. bailout alone is reason enough to send you back to Princeton. First you told us A.I.G. and its creditors had to be bailed out because they posed a systemic risk, largely because of the credit default swaps portfolio. Those credit default swaps, by the way, are over the counter derivatives that the Fed did not want regulated. Well, according to the TARP Inspector General, it turns out the Fed was not concerned about the financial condition of the credit default swaps partners when you decided to pay them off at par. In fact, the Inspector General makes it clear that no serious efforts were made to get the partners to take haircuts, and one bank's offer to take a haircut was declined. I can only think of two possible reasons you would not make then-New York Fed President Geithner try to save the taxpayers some money by seriously negotiating or at least take up U.B.S. on their offer of a haircut. Sadly, those two reasons are incompetence or a desire to secretly funnel more money to a few select firms, most notably Goldman Sachs, Merrill Lynch, and a handful of large European banks. I also cannot understand why you did not seek European government contributions to this bailout of their banking system.

From monetary policy to regulation, consumer protection, transparency, and independence, your time as Fed Chairman has been a failure. You stated time and again during the housing bubble that there was no bubble. After the bubble burst, you repeatedly claimed the fallout would be small. And you clearly did not spot the systemic risks that you claim the Fed was supposed to be looking out for. Where I come from we punish failure, not reward it. That is certainly the way it was when I played baseball, and the way it is all across America. Judging by the current Treasury Secretary, some may think Washington does reward failure, but that should not be the case. I will do everything I can to stop your nomination and drag out the process as long as possible. We must put an end to your and the Fed's failures, and there is no better time than now.

No Easy Jumpstart To Get Small Business Hiring Again

2009-12-03T10:00:00Z

As 130 business, labor and thought leaders converge on the White House today to discuss ways to create more jobs, the nation's main engine for job creation -- small businesses -- is stalled out.

Suffering from a lack of available credit, low demand for goods and an uncertain economic environment, small businesses are hurting even more so than larger firms.

A variety of proposals to help small business are floating around Washington. They include funneling unspent TARP funds into banks on condition they lend the money to small businesses; pushing the Small Business Administration, a federal agency, to increase its lending and guarantee more loans; and using other TARP money to provide cheap financing for investors to buy securitized small business loans.

One proposal championed by Sen. Mark Warner (D-Va.) and endorsed by 32 other senators calls for up to $40 billion in unspent TARP funds to be channeled into smaller banks, only to be used for small business loans -- a "use it or lose it" source of funds. The Obama administration supports elements of the plan, which doesn't require congressional action, but hasn't made any public steps toward actually implementing it.

But pushing banks to lend more in an uncertain economy to perhaps non-credit-worthy borrowers may not really solve the problem.

"Community banks aren't lending more not because they don't have the money; they're not lending more because they don't see good lending prospects out there," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. "I don't think the issue here is one of bank lending. You have a falloff in lending as you always have during a downturn because there aren't any good lending opportunities."

He says the reason behind the lack of available credit is due to plummeting real estate values in the commercial and residential markets, as well as significantly decreased consumption. Simply put, consumers aren't spending as much so businesses don't have much reason to grow.

"I really think the lending [issue] is sort of barking up the wrong tree," Baker said. "I don't know what force-feeding banks money is going to do. As much as we might want to give more money to them I don't think they'll have anything to do with it if we did."

The two leading small-business advocacy organizations - the National Federation of Independent Business (NFIB) and the National Small Business Association (NSBA) - have differing views. The NSBA points to the lack of credit as one of its top priorities. But in a report released last month based on survey data, the NFIB noted that while its members were having difficulty getting loans, it was far from a top priority. "Too many [business] owners have no reason to borrow," the authors wrote. "The biggest problem was a dearth of customers."

Some small businesses are clamoring for more credit, but others are reluctant to take on more debt, particularly considering the uncertainty of the economy. As Mark Zandi, chief economist with Moody's Economy.com, put it Wednesday in a meeting with lawmakers on Capitol Hill: "The odds that the economy will backtrack into recession remain uncomfortably high."

Tim Duy, a former Treasury Department economist now at the University of Oregon who runs a popular blog chronicling the Federal Reserve, says that banks have plenty of cash to lend.

"I would start with this question: are banks really having that much trouble getting cash right now? Deposits are up, so it's not as if there's no cash for banks to lend. And it's not as if the cost of funds is very high right now," Duy said.

Indeed, domestic deposits at banks are up $331 billion since last year, an increase of about five percent. And the federal funds rate -- the Federal Reserve's interest-rate target for overnight loans between banks -- is at record lows, averaging 0.12 percent in October. The lower the rate, theoretically the more incentive exists for banks to borrow and invest (like in loans to small businesses). Two years ago the rate was 4.76 percent.

In addition, as of October banks were holding nearly $1 trillion in excess reserves, according to the most recent federal banking data. That figure is in excess of what's mandated by government regulators. By contrast, in the decade before the financial crisis blew up in September 2008, the nation's banks held an average of $1.7 billion in excess reserves.

Nevertheless, lending continues to decrease. Commercial and industrial loans have dropped 16 percent since last year, according to the Federal Reserve. Loans through credit cards -- which many small businesses use to finance their operations -- have fallen nearly five percent since last year, according to the Federal Deposit Insurance Corporation. And unused lines of credit, such as a credit card line or loans secured by commercial real estate -- two other popular forms of financing for small businesses -- are down a whopping 22 percent since this time last year.

Economists Baker and Duy say the demand for loans isn't really there. Survey data from the Federal Reserve backs them up. In the third quarter, nine percent of banks reported "moderately stronger" demand for commercial and industrial loans from smaller firms (defined as having less than $50 million in annual sales) compared to the second quarter. But nearly 45 percent of banks reported "moderately weaker" demand.

In the previous quarter, three out of five banks reported weaker demand from smaller firms for these loans; in the year's first quarter, two-thirds of banks reported lower demand.

"It's hard to force banks to make loans they don't want to make," said Allen N. Berger, a former senior economist at the Federal Reserve, now at the University of South Carolina. Berger has published several research papers on bank lending, credit availability and small businesses. "Business conditions are riskier...not a lot of small businesses are in good enough shape to get loans. It makes sense for banks to be rejecting loan applications," he said.

The Independent Community Bankers of America (ICBA), the country's leading small-bank advocacy group, supports increasing loans to small businesses, says Paul Merski, the group's senior vice president and chief economist. "Small businesses don't do well if community banks aren't doing well, and vice-versa," he says.

But Merski traces much of the problem to the broader economic conditions. After all, when unemployment is at 10 percent and consumption and income are down, the viability of many small businesses comes into question.

Merski adds that bank lending is based on collateral and with about 45 percent of all small business loans backed up by real estate collateral -- and with real estate prices down by roughly a third from their peak -- smaller firms have been disproportionately affected.

Bank regulators are forcing banks to reduce the risks to their balance sheets, he said. "Unless you have bank regulators ratchet back the pressure they're putting on banks, it's not going to be easy to make those loans."

Zandi said federal money instead should be used to bolster the securitization market for small business loans, partly because it's not clear that the banks would want the TARP money if there are too many strings attached. That would reduce the risk posed by individual loans.

Christina Romer, chairwoman of the White House Council of Economic Advisers, remains hopeful, writing in an opinion piece regarding job creation in Wednesday's Wall Street Journal that "a moderate and targeted investment by the government" in the form of "measures to restore the flow of credit for small businesses and targeted tax cuts... might be leveraged into significant employment gains and purchasing power by small businesses."

But thus far, none of the major proposals to boost small business lending calls for more than $50 billion. Merski says they would only make an impact "at the margin." James K. Galbraith, an economist at the University of Texas at Austin who's called for a second stimulus package, agrees.

"Although I would give all of these efforts points for trying, I would say that they're at best functional as part of a much larger effort to turn the macroeconomic environment around. The situation calls for something much larger."

Questions For Ben Bernanke's Senate Hearing

2009-12-02T22:40:43Z

The Senate Banking Committee will be chatting with Ben Bernanke this Thursday to vote on his reappointment.

Demand that the Committee ask the following questions for our esteemed Esteemed Chairman (and contact your own Senators also and demand that they find out the answers to the following questions). If you are a Senate aide, please get these questions to your Senator.

Bank of America to repay TARP, raise cash

2009-12-02T17:37:05Z

NEW YORK — Bank of America Corp. said Wednesday it plans to repay its $45 billion in government bailout funds in the next few days, a move that will help the troubled bank recruit a new CEO.

The bank said in a statement it would use available cash and raise $18.8 billion in capital to repay the money, which it received during the height of the credit crisis last year and after its purchase of Merrill Lynch & Co. earlier this year.

Richard Zombeck: Shaming the Shameless: Why Treasury's Tactics Won't Stop Banks from Misbehaving

2009-12-02T11:30:25Z

August seems to have been the month for scoldings at the Treasury Department. In August we felt the chilling winds of shame blowing across what was left of our economy when Assistant Secretary for Financial Institutions Michael Barr said, "I think we've been disappointed... about [banks'] performance in helping people in a timely fashion with the respect they deserve under difficult circumstances."

On Friday, after four months without progress, Barr said, "The banks are not doing a good enough job. Some of the firms ought to be embarrassed, and they will be."

What did shame get us? We got to hear the CEO of Goldman Sachs, the company not only responsible for this fiasco but also profiting from it. "I'm doing God's work", they tell us in a disgusting display of self adulation.

What's changed, that suddenly shame is going to work on the shameless? Have lenders come to the uncomfortable realization that they caused this mess, were bailed out by the same tax payers they've been kicking to the curb, and now it's time to do the right thing? Doubtful.

What we do hear from banks is that they need time to ramp up their "complicated processes" and staff. Raising interest rates doesn't seem to be a problem. My loan jumped to 9.5% on the exact day they said it would. No delay, no mistakes, no misplaced paperwork, no excuses.

Some executives will have you believe that it is a paperwork problem.

"The documents were confusing. Borrowers did not understand the process wasn't closed until the documents came in," Sanjiv Das, chief executive of Citigroup's mortgage unit, said earlier this month. "Even when the documents came in, they were not always complete."

It's hard to believe that enough Citigroup customers are so confused that the entire lending machine is grinding to a halt. Here are the documents required by HAMP: a request form, a tax form, and a pay stub. That and a stamp to mail the stuff are all you need.

There's more to the problem than administrative delays. These banks are all getting billions of dollars of taxpayer incentives to modify loans, but despite that, they continue to abuse and con homeowners.

OneWest took $814.2 million in taxpayer bailout and was called "inequitable, unconscionable, vexatious and opprobrious" by a Long Island Judge who wiped out a $525,000 loan calling out the bank for "harsh, repugnant, shocking and repulsive" acts.

Bank of America, receiving $6.1 billion in bailout funds, has been blamed for a man's fatal heart attack due to stress, and that's just one story.

Ira Glass, of This American Life, interviewed a Marine back from combat in Iraq, who said dealing with his mortgage was the most stressful thing he's been through. That was Chase, receiving $3.4 billion.

Chase continues to give one woman the run around after putting her through five months of trial payments, according to a The New York Times article.

Ocwen Financial Services, getting $656 million, might be the worst. This supposed poster child of loan modifications is gloating to industry rags about their success. You'd think from some of the press releases that they were single-handedly saving Western civilization. CEO Ronald Farris even went so far as to tell NPR that other banks were coming to them for advice.

According to Paul Koches, Executive Vice President, Ocwen has modified 66 percent of its loans to permanent modifications. That's 5,000 loans according to John Prior of HousingWire.com, but according to MortgageOrb.com the number is 3,039, and according a report from The Congressional Oversight Panel last month it's closer to 700. But Koches was also bragging about numbers nearing 60,000 in July, so who knows?

I asked Prior in an e-mail where he was getting his numbers and how he got his information. "Got the numbers from Ocwen in an interview with Koches," was the response.

Really!? He got it from the VP of a company that notoriously rips people off and trusted that information enough to write an article?

I should also mention that NPR never asked Farris for any proof of his claims.

Among Ocwen's loan modifications is my own. The process took 13 months of submitting paperwork no less than 15 times, interviews in The Huffington Post, radio interviews, my blog, and relentless phone calls and e-mails to John Tierney, Barney Frank, and Martha Coakley. We are still upside down on our mortgage by about 40 percent. Ocwen's executives may claim to reduce principals and say nice things like:

We roll up our sleeves; we talk directly with the borrower. We find out what their situation is and we provide counseling and basically a complete underwriting of the delinquent loan, perhaps the way it should have been done at the point of origination. - Paul Koches, Executive V.P.

According to Ocwen CEO Ronald Farris' own secretary, Linda Ludwig, Ocwen never reduces principal, despite what their executives are quoted as saying. They actually increased our principal by $20,000.

Belva Davis, of Michigan, with the help of a local activist group also got a loan modification from Ocwen after a year of negotiating. "The strategy included rallies in front of her house, pickets in front of the house of Wachovia/Wells Fargo administrator and huge numbers of telephone calls and e-mails to Ronald Farris the CEO of Ocwen," according to an article in Houserepos.

Ocwen even brags on their web site about a homeowner they helped by giving her free mortgage payments for a year in this article. Sounds pretty good right? What they don't mention, according to a former Ocwen employee, is that they charged her over $20,000 in foreclosure fees on the back end of the loan for a $52,000 home in Florida.

"I don't think they ever intended to do permanent loan modifications," said Margery Golant, a Florida lawyer who previously worked for Ocwen Financial to The New York Times. "It's a shell game that they're playing."

So really, shame is the tactic du jour? That's it? If you really want to see how homeowners are being treated by banks and servicers or whether the first round of shaming them back in August actually worked, read some of the stories from 20,000 members and homeowners at LoanSafe.org and judge for yourself. And while you're at it, sign their petition telling Congress to get off their ass.

See more at www.shitheadery.com

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Geithner: $700B Bailout Program Will End Soon, Derivatives Allowed Banks To 'Write Their Own Rules' (VIDEO)

2009-12-02T11:11:17Z

WASHINGTON (MARCY GORDON - AP) -- Treasury Secretary Timothy Geithner is affirming the administration's intent to soon end the $700 billion financial bailout program.

Geithner did not provide details, but says the government is close to the point at which "we can wind down this program" and end it.

"Nothing would make me happier," he told the Senate Agriculture Committee.

Some lawmakers have been agitating for an exit from the politically unpopular bailout program that was put in at the height of the financial crisis last year.

Geithner also says legislation to bring transparency to the global, unregulated $600 trillion derivatives market was needed soon to restore confidence in the U.S. financial system.

Geithner also said Wednesday that legislation to bring transparency to the global, unregulated $600 trillion derivatives market is needed to restore confidence in the U.S. financial system.

(Watch an excerpt of Geithner's testimony below:)

A major sticking point in Congress involves companies that use derivatives to hedge against risk. Some lawmakers want to exempt the so-called "end users" from new requirements in the overhaul legislation.

But Geithner said he's pleased by "the convergence on good policy" that has occurred in crafting legislation to impose new oversight on complex instruments blamed for hastening the financial crisis.

"There is a growing strong consensus about the nature and scope of reforms necessary to make our derivatives markets more transparent, more efficient, more fair and more stable," he said in testimony prepared for the Senate Agriculture Committee. "This is an enormously complex project. It is important that we get it right. And it is critical that we finish the job."

The value of derivatives hinges on an underlying investment or commodity -- such as currency rates, oil futures or interest rates. The derivative is designed to reduce the risk of loss from the underlying asset.

Credit default swaps, a form of insurance against loan defaults, account for an estimated $60 trillion of the worldwide derivatives market. The collapse of the swaps brought the downfall of Wall Street banking house Lehman Brothers Holdings Inc. and nearly toppled American International Group Inc. last year at the height of the crisis, spurring the government to support the insurance conglomerate with about $180 billion in aid.

The Obama administration's proposal is close to legislation in the House, requiring most derivatives trades to go through clearinghouses to bring transparency, and subjecting financial firms dealing in the instruments to new capital requirements.

Geithner said that regulating derivatives would reduce risk to the financial system and help companies that rely on the instruments save money.

All derivatives contracts that are "liquid and standardized" -- backed with cash and not designed for specific users in a transaction -- should go through well regulated clearinghouses, he said. There should be a presumption that a contract accepted for clearing by one of the houses and approved by the Commodity Futures Trading Commission or the Securities and Exchange Commission must be centrally cleared.

A potent coalition of about 170 end user companies -- including Boeing Co., Caterpillar Inc., Ford Motor Co., General Electric Co. and Shell Oil Co. -- has been lobbying Congress with the message that regulation of derivatives without exceptions could severely increase costs for corporate America. That could mean higher costs passed on to consumers and imperiled jobs, they contend.

Several senators on the Agriculture Committee have expressed support for that view. But CFTC Chairman Gary Gensler has said that if Congress decides to exempt some end-user transactions, the exception should be "explicit and narrow."

Dem Senator Hits White House For Dragging Feet On Small Business Lending

2009-12-01T13:18:28Z

Sen. Mark Warner (D-Va.) expressed frustration Tuesday with how slowly the Obama administration is helping small businesses crunched by the financial crisis.

Over the last month, Warner has been rounding up support for using unspent bailout funds to create a lending program that would go toward small businesses. The feds would kick in $40 billion and banks would kick in $10 billion. The program wouldn't require congressional approval since the funds have already been appropriated. But the administration is taking its time.

"I've had a dozen-plus conversations and they are 'working on it,'" Warner said when asked by HuffPost where the White House stood on his proposal, which has the backing of a significant number of senators. "I'd like to see a little more prompt action, because this doesn't require congressional action."

While the administration waits, credit is tight. "Small businesses are at the end of their rope. They've been holding on for the last year. I see retailers right now who aren't hiring for the holiday season because their credit lines have been pulled," Warner said.

Warner, a conservative Democrat from Virginia, said that the program would work mostly through community banks and would involve sharing both the profits and the losses, though the specific makeup is still being negotiated.

What's significant is that the banks would actually be required to lend the money they get from taxpayers, rather than simply sit on it.

"Too often the banks take the TARP funds and shore up their balance sheets. This would be a use-it-or-lose-it pool," he said. "It doesn't add a dollar to the deficit. These are funds that meet the purpose of TARP and could be a dramatic jumpstart to small business lending."

Warner said that he is working with the administration to craft the program so that banks that participatewould not be subject to the restrictions on compensation and other activity that come along with bailout funds.

"Banks don't want to touch [TARP funds] because of the restrictions, so you might need a special purpose vehicle as an intermediary," he said.

Spokespersons for the White House and Treasury didn't immediately respond to a request for comment.

Obama Administration To Shame Lenders That Don't Offer To Modify Mortgages

2009-11-30T16:57:00Z

Its signature foreclosure-prevention plan having definitively failed to actually help very many homeowners, the Obama administration today announced its new strategy to get balky lenders to the table: Nagging.

The U.S. government will start to publicly identify those companies that are failing to give troubled homeowners permanent loan modifications, and hound them daily to monitor their progress, the Treasury Department declared.

Top servicers will be required to submit a schedule demonstrating their plans to reach a decision on each loan for which they have documentation and to communicate either a modification agreement or denial letter to those borrowers. Treasury/Fannie Mae "account liaisons" are being assigned to these servicers and will follow up daily as necessary to monitor progress against the servicer's plan. Daily progress will be aggregated by the end of each business day and reported to the Administration.

The Home Affordable Modification Program (HAMP) was launched in March to much fanfare as the administration's main response to a growing foreclosure problem. The government would provide cash incentives to mortgage servicers that reduced monthly payments for distressed homeowners, and that way those who were facing higher payments or lower incomes could stay in their homes.

But the program, which the administration refers to as "a primary focus of financial stability efforts," has been a disaster according to consumer advocates, economists, housing experts and government watchdogs. It does nothing for those who have lost their jobs, because they have too little income to qualify, and could make things even worse in the long run for those homeowners who owe more on their mortgage than their homes are worth, because the plan does not require principal reductions.

Furthermore, only a tiny proportion of the relatively few homeowners in the program have obtained permanent relief. As of Sept. 1, only 1,711 homeowners, or less than two percent of those who received a temporary modification under Obama's plan, ended up with a permanent fix, according to a report by the Elizabeth Warren-led Congressional Oversight Panel.

And yet, the plan has cost taxpayers about $27 billion so far.

Meanwhile, as many as 3.4 million homes are expected to enter foreclosure by year's end, with some experts estimating that next year will be even worse.

The administration's latest push -- shaming the mortgage companies -- is "certainly a step forward after six months of operation," says Alan White, a law professor at Valparaiso University who has written extensively on mortgages and foreclosures. "But it's not going to help by itself."

"It's a long-overdue step," he said. "At this point, the servicers are propped up in [many] different ways by the taxpayer -- HAMP isn't the only subsidy they're getting -- and if we're going to prop them up then they ought to achieve our public policy objective."

The four big banks are also the biggest servicers, he noted, and American taxpayers are the majority shareholders in three of them: Bank of America, Citigroup and Wells Fargo. "He who pays the piper should call the tune."

Others were even more critical. "The Obama administration's latest adjustments to its nine-month-old foreclosure prevention program do little but highlight the continued failure of lenders' voluntary efforts to stop the foreclosure crisis," Michael Calhoun, president of the Center for Responsible Lending (CRL), a consumer-advocacy group, said in a statement.

Consumers advocates have long said that the program is poorly managed and relies too heavily on mortgage servicers, whose interests are not necessarily aligned with those of homeowners. Economists and advocates point to principal reduction, for example, as perhaps the best way to achieve a permanent, sustainable modification. Lowering the total amount due -- particularly for those homeowners with negative equity -- could induce homeowners to keep up with their payments and stay in their homes.

But most servicers and banks are loath to reduce principal, particularly for those mortgages that have been securitized. Also, servicers' fees are based on the overall balance of the loan, so if the balance of the loan is reduced, then so are their fees.'

In the administration's plan, the servicers essentially call the shots, rather than the investors -- and yet they still don't want to participate.

One reason is that reducing the principal forces banks to recognize the losses on those loans. By not reducing the principal, the banks can essentially pretend that the loans may one day become current again. It's an accounting trick, consumer advocates say.

Yale economist John Geanakoplos is among those arguing that principal reduction is the best way to reduce foreclosures. By contrast, the administration simply requires that homeowners' monthly payments be lowered, which can happen either through an interest rate reduction, or by lengthening the term of the loan. If a bank turns a 30-year mortgage into a 40-year mortgage, for instance, the homeowner could see the monthly payments drop -- but with 10 years of extra interest, would actually end up owing more.

Andy Kroll: The American Home-Owning Dream On Life Support

2009-11-30T10:43:26Z

Cross-posted with TomDispatch.com

At the end of a week in mid-October when the Dow Jones soared past 10,000, Goldman Sachs recorded “just another fantastic quarter” with a $3.2 billion quarterly profit, JPMorgan Chase raked in a cool $3.6 billion, and a New York Times headline declared “Bailout Helps Revive Banks, And Bonuses,” I spent a Saturday evening with about 100 people camped out in a northern California parking lot. A passerby, stealing a quick glance, might have taken the crowd for avid concertgoers staked out for tickets. There was, however, no concert here -- just weary, huddled souls, slouched in vinyl folding chairs, covered by blankets, windbreakers, and knit hats against a late autumn chill.

A ragged line of them wound through the lot outside the entrance to the Cow Palace, a dingy arena decades past its prime on the southern edge of San Francisco. These people, and thousands more like them who had streamed into the arena all day long from as far away as Los Angeles, Phoenix, and Las Vegas, were unemployed, broke, bankrupt, or at their wit’s end. They were here waiting for help -- for their chance to make it inside the warm arena to participate in “America’s Best Mortgage Program.”

For these homeowners, the last shot at saving their homes -- and their personal version of the American Dream -- lay under the glow of the floodlights in a expanse where tiers of brown and yellow seats encircled a desk-lined floor more accustomed to livestock shows and rodeos. This was, in fact, the latest stop on the “Save the Dream” tour, a massive homeowner-relief event organized by a consumer advocate group, the Neighborhood Assistance Corporation of America (NACA).

The turnout was staggering: close to 45,000 desperate homeowners showed up during NACA's five-day stand at the Cow Palace for the chance to renegotiate their disastrous subprime mortgages or sky-high interest rates or interest-only payments. For them, this event beat any chance at a star-studded concert -- and best of all, it was free.

Inside, homeowners received housing-related financial advice and met with NACA’s counselors, a stoic crew, always with coffee or energy drinks in hand and clad in red and yellow T-shirts with STOP LOAN SHARKS and SHARKS BEWARE emblazoned on their backs. Here, homeowners could have their income, taxes, and spending habits analyzed, and possibly walk away with a monthly mortgage payment that actually fit their situations. With that payment figure in hand, homeowners could then meet with representatives from their mortgage companies in the same arena and try to hammer out new terms on more affordable mortgages.

The process would save many of them thousands of dollars, defuse an explosive mortgage, even avert foreclosure. To boost morale, NACA officials occasionally ushered chosen homeowners to a makeshift lectern where each offered a glowing testimonial over a PA system to the work taking place. They spoke fervently of new fixed-interest loans and fought back tears, while thanking their counselors, friends, NACA, and -- regularly -- God.

“It’s a beautiful thing,” said Venus Roberts, a homeowner from Los Angeles who came away from the event with lower mortgage payments. I caught up with her in the arena’s parking lot as she was heading for the Amtrak station and a train home. A small, floral-printed suitcase in tow, Roberts had arrived early Friday morning, waited all day long, and finally spent the night in a nearby hotel. Back in line Saturday morning, she finally saw a counselor. The wait, she assured me, couldn’t have been more worth it. In the sort of reverential tone normally reserved for the miraculous, she avowed, “NACA is spreading the news that help is here.”

Not everyone was so inspired. Near the tables behind which bank representatives were arrayed I spoke with Maria Hernandez of San Jose, who was fuming about her meeting with representatives from the bank Wachovia. Hernandez, haggard and emotional, struggled for words. “It was a… what’s the word? A mockery. Yes, a complete mockery.” Wachovia, she insisted, had failed customers like her, letting desperate people wait in line for days only to send them home essentially empty-handed. (No representatives of mortgage companies were made available for comment at the event.)

So impassioned was Hernandez that a small crowd of the frustrated and curious soon gathered around her. Even Bruce Marks, NACA’s pugnacious CEO, stopped to hear Hernandez. “All this information is related to us, then we get to Wachovia, and for what?” she asked indignantly. “To just come back another day? Or have your kids in the van spend another night here?”

Most of the people I met at “Save the Dream,” though, weren’t either as elated as Roberts or as disgruntled as Hernandez; they were still in limbo, waiting in line, their futures hanging in the balance. That line began in the parking lot and, once inside, filled huge sections of the arena’s seats where thousands of bleary-eyed homeowners, some there for up to 36 hours, waited to see a counselor or to meet with Spanish-speaking advisers. Those earlier in the process sat in yet another section of the cavernous arena before an initial orientation workshop, a sort of Home Economics 101 held in an adjoining annex.

Some of the homeowners I interviewed that Saturday had already been in line for 10 or 12 hours on the previous day, and had returned before sunrise once again to take up their posts. Some had slept under blankets in their seats; others clutched rolled-up sleeping bags clearly meant for an expected camp-out that night.

As I waded through the main seating area around midday, Ed Kidwell, a burly, boisterous truck driver from Fontana, California, sporting a University of Southern California hat, stopped me. Noting my camera and pad, he wrapped a big arm around my shoulder as if we were lifelong friends reuniting. “I’m just waiting for some good news to take home to take the stress off my wife and kids,” he explained. Though dog-tired -- he’d arrived in the wee morning hours -- Kidwell assured me he’d do just about anything to get his mortgage fixed. As proof he offered to sing me a mortgage-themed song in the style of soul singer Sam Cooke. With a few thousand pairs of eyes trained on us, Kidwell promptly cleared his throat and belted out lyrics that featured some mix-and-match combination of the words “relief,” “modification,” “IndyMac,” and “baby.”

A man crooning about mortgage relief, retired couples camping in a parking lot for counseling appointments, 4,000 exhausted “fans” cheering announcements of 2% fixed interest rate loans as if they were so many slam dunks -- after a day at “Save the Dream,” you’d be forgiven for thinking that, when it came to working class and middle class Americans, the housing market and the American economy in general hadn’t exactly improved since its implosion in the fall of 2008. Surveying the organized chaos in the Cow Palace, you might also be forgiven for thinking that all the talk of “recovery” was little more than that -- unless you happened to work for Goldman Sachs. Indeed, the beleaguered faces of the desperate homeowners at “Save the Dream” brought to my mind a famous Dorothea Lange photo of a Depression-era bread line in San Francisco’s Mission District, an image captured 75 years earlier just miles from where I stood.

If you happened to be at the Cow Palace that Saturday, the daily news about the very financial players who had fueled the subprime debacle and the global economic collapse returning to their risky, overleveraged ways could seem little short of surreal. Here, after all, was a reasonable selection of what the media likes to call “Main Street” mired in debt, clinging to homes at the edge of foreclosure, struggling through a jobless “recovery.”

A “recovery,” that is, in which the true underemployment rate is 17.5%, average employee wages continue to drop, and the housing market is in shambles. The 937,840 foreclosure filings from July to September of 2009 set yet another industry record. So many people are returning to school that some community colleges have extended classes until 2 A.M. and are turning away hordes of new students. No one -- not a single person -- I interviewed at “Save the Dream” agreed with Treasury Secretary Tim Geithner or Federal Reserve chairman Ben Bernanke that their country was on the economic rebound.

Mary McCleese, an Oakland resident, who was, at least for the moment, keeping her home thanks to NACA’s help, was typical. “If you look around, you see how many people is out of work, number one, and you see how many people is in foreclosure or lost their homes or in default because they've lost their jobs,” she said. “That tells you right there what the economy is doing.”

II. Housing Meltdown, Ground Zero

About a week before the “Save the Dream” event, I rented a car and headed east from San Francisco toward Ground Zero of the subprime mortgage meltdown. Visiting one of the hardest hit cities in the country would, I reasoned, offer another measure of whether the “green shoots” of “recovery” were truly pushing up through the overleveraged earth -- better surely, when it came to ordinary Americans, than the rising price of AIG’s stock or the Dow’s ascent. While many cities can contest for the title of “most devastated by the meltdown,” including metropolitan hubs like Las Vegas and Fort Lauderdale or suburban areas like Bakersfield, California, or Mesa, Arizona, it turns out I didn’t have far to drive.

After all, Stockton, California, an arid, unremarkable city in the San Joaquin Valley, was only 80 miles away. A place for which “decimated” isn’t hyperbole but a mathematical statement of fact, Stockton, with its population of around 300,000, recorded nearly one foreclosure for every 10 houses in 2008. As other towns like to call themselves “the artichoke heart of America” or “America’s Bread Basket,” Stockton could call itself the heart of America’s subprime meltdown.

It’s an hour-and-a-half drive from San Francisco to Stockton, up through the Altamont Pass with its rows of wind turbines, then down into the Central Valley’s wide expanse and, via I-5, into the open streets of Stockton, a city that has often seemed to embody the vicissitudes of the housing crisis. In February 2008, for instance, national media outlets latched onto the story of a local man who, struck by the entrepreneurial spirit, started a business called Greener Grass Co. His service: Spray-painting the dead, burnt-out yards of foreclosed houses a hue of green so realistic that the local newspaper described the painted lawns as “good enough for a golf course or a professional football stadium.”

When I pulled into Stockton last month, more than a year had passed since CNBC had pegged it the “Foreclosure Capital of the World” -- and painting lawns green was still de rigueur. Local government workers had now taken up the job. Dead lawns, the thinking went, signaled empty houses and so attracted trouble. Painting lawns, the city hoped, might dissuade people from breaking into deserted homes.

Around mid-morning, I pulled into the Little John Creek neighborhood near the airport on the city’s southern outskirts, and one of the first things I saw was an abandoned house displaying their handiwork. The green was, in fact, a sickly teal hue and had been laid down in bizarre stripes on a dead lawn on Togninali Lane. It was, to say the least, a far cry from fairways, football stadiums, or even the perfectly real turf on neighboring lots where grass grew and people lived.

Here, the houses without occupants stood out like so many missing teeth in a wide smile. On just about every street, foreclosures dotted the landscape: stucco homes with sheriff’s notices taped to front doors, FOR SALE signs askew in front yards, lawns burnt into suburban hay by the summer sun that had yet to receive their eerie coats of green. I parked near foreclosed house after house and walked up front paths and driveways to peer through windows and over backyard fences. Most of the homes were starkly empty, often gutted -- “trashed out” in industry parlance -- with not a trace of their former owners.

In a few, though, there were hints of lives lived and lost. A deflated basketball, a toy truck, and a skateboard sat in the backyard of a tan house with a two-car garage in Little John Creek, the back porch light still unnervingly aglow in broad daylight. At a nearby house, the front flower bed was filled with foreclosure-crisis detritus, including the business cards of realtors and mortgage specialists.

The half-dozen neighborhoods I drove or walked through in various parts of Stockton proved but repeats of Little John Creek, still littered with empty homes -- “decimated” -- more than a year after the financial meltdown occurred. Though Stockton’s foreclosure rate has dropped from 9.5% of the city’s houses in 2008 to 3.5% in the third quarter of 2009, that’s nothing to brag about. It remains the fourth-highest rate in U.S. metropolitan areas.

Before arriving, I had envisioned the foreclosure crisis as a somewhat localized event with the majority of such homes in a limited number of lifeless neighborhoods. In Stockton, at least, the opposite was true: foreclosed homes were salt-and-peppered around the city. They often sat singly or in twos and threes among occupied homes in still lived-in neighborhoods, in cul-de-sacs where kids played basketball, on blocks where neighbors waxed their cars on a Sunday afternoon, or down streets where friends were barbecuing in open two-car garages.

The thought of an emptied-out neighborhood may pack a more visceral punch for a story, but from an economic or social standpoint, a mix of foreclosed and occupied properties is far more damaging to those still in their homes. A report from the Center for Responsible Lending estimates that foreclosures will cost neighbors $500 billion in home value in 2009, or an average of $7,200 for 69.5 million homes. A study by the Federal Reserve Bank of Chicago also found that when foreclosures increase, so, too, does violent crime in neighborhoods.

For those who have clung to their homes in hard-hit areas, the value of those investments has plummeted, while the ability to sell and so move elsewhere -- to take a new job or live in a cheaper market -- is now greatly hindered. In other words, a crisis like this one in a city like Stockton is not easily escaped.

III. A Bubble Grafted onto Rubble

The billboards and roadside ads lining Stockton’s streets like campaign signs repeatedly proclaim: “Mortgage Modification Works!” and “Call for Loan Modifications!” I counted five of them on one block alone, and together they created the impression that help had arrived. Yet I knew they were scams, with anonymous local phone numbers and little other identification, meant to relieve desperate homeowners in a city not lacking in desperation of whatever money they had left. The subprime meltdown, as it turns out, has been a boon for crooks preying on the vulnerable. (Not long ago, the FBI announced a nine-month mortgage fraud investigation in Florida involving 500 defendants and $400 million in loans.)

Outnumbering the scams three to one along Stockton’s main thoroughfares were glossier professional ads. At almost every intersection they urged locals to take advantage of the federal government’s recently extended $8,000 homebuyer tax credit. Never mind that this tax credit has been criticized by economists and experts alike who say it could create a new housing bubble amid the devastation. Even while the rubble of the subprime meltdown is still smoking, developers here in California’s Central Valley are already dreaming again about speculation on new homes.

At one point, I followed a succession of these tax-credit come-ons out to a subdivision called Cobblestone Bay. There, at the city’s edge, new homes with white picket fences are popping up at the edge of the undeveloped valley beyond. It was hard, having spent much of the day in foreclosure-riddled neighborhoods, to walk around this new development without a sense of déjà vu. I couldn’t shake the feeling that Cobblestone Bay was already being prepared for future foreclosure. All it lacked -- for the time being -- was the fake green lawns.

In fact, all the ad trails touting the $8,000 tax credit I followed led to subdivisions like this one, cookie-cutter communities lacking distinguishing characteristics that might remind you of California (rather than, say, Arizona or Florida). These were, of course, the very kinds of neighborhoods that were thrown up wherever land was cheap in the California boom construction years of 2005 and 2006, and the kinds of neighborhoods now in subprime ruin.

As my visit was ending and the sun disappearing behind the valley’s edge, I made one last stop on the outskirts of town at the ornate entrance to a subdivision called Golden Eagle. It included, as its centerpiece, an impressive five-tiered water fountain, while large wrought iron gates depicting eagles-in-flight separated Golden Eagle from the surrounding neighborhood. Except there was no Golden Eagle -- just a single unfinished house on the weedy, 15-acre property. Construction equipment sat motionless on the dusty earth. A placard outside the gated entrance trumpeted grand expectations, but the new neighborhood looked stillborn.

I took down a phone number from the entrance placard and, later that week, called Golden Eagle’s developer, a man named Tom Ruemmler. He told me that he had been on the project for more than three years, and envisioned it as a luxury, energy-efficient community for the green future. Ruemmler was no rube when it came to mortgages and the housing market: in the mid-1990s, he won a multi-million dollar mortgage-fraud whistleblower suit involving a Sacramento bank whose Stockton loan office he once managed.

Who, I asked him, would buy a custom, high-end, zero-energy, hypoallergenic home in a city leveled by foreclosures where housing prices have plummeted and nearly one in six people are unemployed? “I’m dealing with a different clientele,” he responded, bridling at the question. “I’m dealing with probably one-fiftieth of one percent of the buying public.” Did he honestly think he could sell 30 of these lots to such a small percentage of people in a place like Stockton? "Now is the time to build a custom home," he insisted. “Somebody out there is going to have money that has somebody in the family that has allergies.” And out in the San Joaquin Valley, with a foreclosure on almost every block, he intended to find them.

Andy Kroll works for Mother Jones magazine and is a frequent contributor to TomDispatch. He lives in San Francisco.

Les Leopold: Stimulus versus Deficit Reduction? Wrong Debate

2009-11-30T09:37:42Z

"With food stamp use at record highs and climbing every month, a program once scorned as a failed welfare scheme now helps feed one in eight Americans and one in four children."

New York Times November 29, 2009

Hunger is returning to a nation that has been blessed with everything. Shame on us.

The Wall Street bailout combined with the stimulus package was supposed to put our people back to work. Instead, these policies created another record year for Wall Street profits and bonuses while the jobless rate is the highest since the Great Depression. Even the Federal Reserve is forecasting an unemployment rate that will stay above 9 percent through 2010 and above 8 percent through 2012. It could be a decade or more before we see full-employment again. This is an unmitigated disaster for real people trying to hold their lives together.

Some economists argue that the initial stimulus package was too small to make up for the gaping hole the financial crisis tore out of the economy. But that analysis overlooks the incredible inefficiency of the stimulus itself. How could a $787 billion stimulus package only produce about 650,000 jobs, even if only half has been spent so far? At that rate the program is costing about $600,000 per job. That amount should be producing more like 10 jobs, not one job.

It seems as if the Congress and the Administration did everything possible not to create jobs directly. Instead, overall spending increases were supposed to make up for lost consumer demand and reboot the economy. All would be well as demand increased and bank lending resumed, especially to small businesses. But the lending is still stalled, in part that's because we no longer live in a unified economy. The wealthy and the large Wall Street banks seem to live in a world of their own.

Spending more money to increase overall demand no longer guarantees that new jobs will be created. For example, a careful accounting would show that a good deal of the stimulus money ended up as profits for contractors of all kinds rather than in new jobs. Also, we know that much of the renewable energy money has leaked abroad to purchase wind generators and other equipment. (See "Gone With the Wind: Blowing U.S. Tax Dollars Off Shore")

The answer is not more stimulus in general. The answer is direct hiring by federal, state and local governments. If we want more teachers, then we should create a national teachers' corps. If we want to insulate homes and businesses then we should build national caulkers corps modeled after New Deal programs like the Works Progress Administration.

The job/cost equation changes dramatically when government does the hiring. By the time the $787 billion runs out, the Obama Administration will be lucky to create 2 million new jobs. However, had that money gone directly into job creation at about $75,000 a job including administration and benefits, we're talking 10.5 million new jobs --- jobs we can believe in.... and count.

We do in fact need a new round of stimulus spending. But only if it funds direct job creation. We tried the indirect route and it doesn't put enough people to work.

And what about the deficit hawks? They sense the debate is drifting their way: "We all are living beyond our means"..."We have to get our fiscal house in order"..."The government is wasteful, always." Borrowing more, we are told, will lead to disaster. Not only will it put us more at the mercy of China which holds so much of our debt, but government borrowing will crowd out corporate borrowing and therefore kill jobs. You know the song and the hypocrisy--after all, it's those who claim to worry about the deficit who do the most to prevent the government from spending its money efficiently by demanding useless (and budget busting) tax cuts in place of effective, direct spending on job creation.

The New York Times recently joined the choir. In a lead article it argued that rising debt payments will dwarf the Pentagon budget in the next decade. But the New York Times, like the screeching deficit hawks are silent on the true underlying cause: The wealthy in America haven't been paying their fair share for more than 30 years.

We lead the world in billionaires. We also have the developed world's most skewed distribution of income. And our financial sector is much too large compared to the real economy it is supposed to serve. If we could see past our ideological blinders, we'd notice that there's plenty of money in this country tucked away in private hands. The super-wealthy never had it so good. If they ever paid anything like their fair share, as they do in Europe, our budget deficits would soon evaporate.

The Forbes 400 alone collectively holds about $1.5 trillion in net worth. You want deficit reduction? Then how about a wealth tax of 5 percent a year until the unemployment rate drops below 5 percent? That small tax on just 400 fortunate souls would reduce the deficit by about $75 billion a year. If we broadened the tax to include all those with a net worth of $500 million or more, we might generate more than $200 billion a year in public funds for debt reduction, or better yet, for real job creation.

A Tobin Tax on all Wall Street financial transactions also would move money from the financial sector to the real economy. A small fee would have almost no impact on 99 percent of Americans who invest long term for retirement or to pay for college. But the fee would dramatically impact the largest speculators who make billions of dollars worth of trades each day without creating one iota of value for the real economy. A Tobin tax could easily generate $50 billion a year for deficit reduction or job creation.

To put our people back to work we need to escape from the old debates. In our new billionaire bailout economy, jobs will be created when we directly create them and not before. Banks won't create them, nor will businesses until after the economy is humming again.

If we want to reduce our national debt, we need the super-rich and Wall Street to pay their fair share. If the fiscal hawks don't have the guts to correct our obscene distribution of wealth and income through progressive taxation and a Tobin tax, then they really have nothing useful to add.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.

Poll: GOP Divided Over Party's Direction, Leaders

2009-11-30T02:48:16Z

The Republican rank and file is largely in sync with GOP lawmakers in their staunch opposition to efforts by President Obama and Democrats to enact major health-care legislation, but a new Washington Post poll also reveals deep dissatisfaction among GOP voters with the party's leadership as well as ideological and generational differences that may prove big obstacles to the party's plans for reclaiming power.

Maurice Greenberg, AIG Settle: Legal Fees, Memoir Materials, Persian Rug Returned

2009-11-25T18:45:03Z

NEW YORK — American International Group Inc. has agreed to settle all legal disputes with its former chairman Maurice "Hank" Greenberg, the company said late Wednesday.

The insurance company, which was bailed out by the government and is now owned by U.S. taxpayers, also resolved its complaints against former Chief Financial Officer Howard I. Smith. AIG said it will pay up to $150 million in past legal fees and expenses for both Greenberg and Smith. The agreement calls for the reimbursements to be reviewed by a third party.

Steven Pearlstein: Is Obama's On Wall Street's Side -- Or Main Street's?

2009-11-25T09:08:31Z

Fairly or unfairly, the official who has come to personify this let-them-eat-stuffing attitude is Treasury Secretary Tim Geithner, who can't seem to decide whose side of the buffet table he's really on. It was Geithner who, at the height of the financial crisis last year, was able to best articulate the unpleasant truth that we could save the financial system or we could punish the banks but we couldn't do both at the same time. But now that the system has been saved, he seems to have lost his appetite for retribution.

Les Leopold: Stop Socialism for the Rich: Nationalize Wall Street

2009-11-25T07:36:39Z

Joe Biden's father had it right: "It's socialism for the rich and capitalism for the poor." How did we get here?

More than thirty years ago we embarked on a grand deregulatory experiment. The financial sector was unleashed from New Deal-era controls. We were told this would lead to great prosperity and that free free-markets would police themselves.

The experiment failed.

Instead, the big banks constructed the wildest casino in history, gambled with other peoples' money, walked off with fabulous riches, and pawned the losses on us. Not exactly Adam Smith's definition of capitalism.

The nineteen largest banks (which represent more than sixty percent of our banking system) wrecked our economy. They still are wrecking it. During the worst financial crash since 1929, many of them are recording record profits. With no sense of shame or even irony, they soon will dole out record bonuses while the BLS jobless rate (U6) hits 17.5 percent (the highest since the 1930s), and while 49 million Americans are skipping meals during this holiday season.

Wall Street created a series of (barely) lawful Ponzi schemes that stacked bets upon bets with no real assets in sight. Profits ran wild as phony assets inflated in value. The too-complex-to-understand financial innovations turned out to be toxic. When they burst, the real economy, the one most of us work and live in, was crushed. (See "Executives Kept Wealth as Firms Failed," New York Times )

Our elite banks still are not lending to job-creating businesses even after taking taxpayer bailouts valued somewhere between $1 trillion to $13 trillion in cash, loans, liquidity programs and asset guarantees. As Fed Chairman Ben Bernanke admitted, the largest banks are causing unemployment to rise by not lending out the capital we provided. We've had jobless recoveries before, but this our first jobloss recovery.

Instead, the largest financial institutions are playing the markets with our bailout funds and liquidity programs. They are gambling yet again by marketing high risk, high-fee securities. They also have a new toy: high speed trading. Each time, you or I buy or sell a stock, a big bank predator computer system is going to come in a nanosecond before our trade is completed to get a better price -- for the bank, not us. This creates zero economic value. It just transfers money from us to them in exchange for ... nothing.

Solutions?

When writing The Looting of America last fall I had offered a series of plausible reforms that I knew Wall Street would detest. But the crisis was so severe that for a moment it looked as if Congress and the administration would do the obvious: Install a sector-wide wage cap on financial salaries until unemployment went below 5 percent; Set a Tobin tax on speculative transactions; Place bans on derivatives that were too complicated to understand; End predatory mortgages; and Reinstate credit card interest rate ceilings to stop bank usury. I was naïve.

Instead, we have a Pay Czar who ignores the obscene bonus pools of Goldman Sachs, JP Morgan Chase and Morgan Stanley. Barney Frank refuses to ban complex, highly profitable, specialty derivatives. The Financial Consumer Protection Agency bill is being watered down, if not totally drowned, by bank lobbyists who are funded with our own TARP dollars. And the White House no longer even jaw-bones Wall Street's excesses. "Change we can believe in" has turned into "All retreat, All surrender."

Former Fed chief Paul Volker, however, won't quit. He is calling for the breakup of institutions that are too big to fail. Even Alan Greenspan agrees. While it would be enormously satisfying to bust up the big boys, it's not a panacea. As long as gambling is the bankers' way of life, a hundred smaller banks will continue the game as vigorously as nineteen large ones. As long as you can make more money by gambling than you can from loaning money to jobs-creating businesses, the net results will be the same.

Also smaller banks won't change the financial distortions of our economy. The financial sector as a whole is much too large and siphons off too much of our wealth, even when its bubbles aren't bursting. The entire sector is too big to fail and too big for the rest of us to succeed.

Decades ago, economists John Maynard Keynes and Hyman Minsky worried that large-scale private sector banking was inherently unstable -- that it would return to speculative activities as soon as the threat of collapse had passed. They wondered whether capitalism would have far fewer crises if the largest financial institutions were permanently nationalized.

They're winning me over. I no longer believe we can regulate our way out of this mess. I keep wondering how $100,000 a year civil servants are going to keep up with a $100 million dollar a year bankers, It's not going to happen. The bankers will use their army of financial engineers to outmaneuver the public regulators. Any regulator who can keep up with them will be sorely tempted to reach for the gold and jump ship. And this assumes that the regulations are tight, which they won't be because of the power and wealth of the bank lobby.

Instead, we should give strong consideration to nationalizing the nineteen largest banks in order to run them like public utilities. They could be modeled after non-profit credit unions and the few remaining state and regional banks. After nationalization, we also should consider placing banking employees into the civil service system in order to end the ridiculous wage distortions: Wall Street speculators should not earn one hundred times more than neurosurgeons.

Stable credit unions and regional banks could do an excellent job of moving savings to investment. It's painstaking, boring work and it will never produce super-profits. We don't need high stakes gambling. We don't need usurious credit card scams. We don't need subprime securitization and the stacks of bets upon them. We don't need high speed speculative trading activity that is just another form of outright cheating. And certainly, we don't need sky-high salaries for the croupiers.

(If you're worried that Wall Street would go in the red like the Post Office or Amtrak, do the math: It would take about a millennium of their red ink to add up to the trillions lost through the current banking crisis.)

Isn't this socialism? We've already established socialism for Wall Street's wealthy. We've allowed them to profit wildly from their fantasy finance bubble. We bailed them out when it burst. And after we emptied the treasury for their rescue, they are profiting wildly again. Is that capitalism?

We have to put our people to work. It's not going to happen through our Rube Goldberg regulatory contraptions now ricocheting through Congress. If we want to avoid a long, dark decade of joblessness, hunger and despair, we will need a renewed dialogue about what banks really are for, and how we get them to function for the pubic good.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.
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In Crazy New Landscape For Banks, Taxpayers Are The Big Losers

2009-11-24T13:30:47Z

This story has been updated

Fifty banks collapsed during the third quarter of 2009, while more than one in 15 are on the verge of failure -- the highest rate since 1992 -- according to a new report from the Federal Deposit Insurance Corporation that depicts a crazy new landscape for banking in which taxpayers are the consistent losers.

Because of all the failure and near failures, the fund that guarantees deposits hit the red for the first time since 1992.

Meanwhile, some banks are making money hand over fist, with the sector as a whole posting $2.8 billion in profits -- up from a $4.3 billion loss in the second quarter.

They're doing so in part by borrowing cheap federal money -- subsidized by the American taxpayer -- even while massively cutting back on lending. The plunge in lending since last quarter is the largest recorded since federal regulators began keeping track in 1984.

The whole point of the taxpayer-funded bailout and the cheap money for banks was to recapitalize them in hopes of stimulating lending, but the banks are holding back -- which is seriously slowing the economic recovery.

"We need to see banks making more loans to their business customers," Federal Deposit Insurance Corporation Chairman Sheila Bair said Tuesday in a statement. "This is especially true for small businesses that rely on FDIC-insured institutions to provide over 60 percent of the credit they use."

In March, the Obama administration announced a $15 billion plan to jump-start government lending to small businesses. But construction and industrial loan balances at banks dropped 6.5 percent in the third quarter; overall loan balances dropped 2.8 percent.

"I will not rest until businesses are investing again and businesses are hiring again and people have work again," President Barack Obama said Monday.

Financial firms -- banks included -- recorded $80 billion in profits, a 36 percent increase from the previous quarter and a 21 percent increase from the same period last year, according to third-quarter numbers released Tuesday by the Commerce Department. The annual rate that represents -- $320 billion -- is the highest it's been since the first quarter of 2008, when the unemployment rate was less than half of what it is now.

But the gulf between the haves and have-nots in the banking industry is widening, imperiling the very institutions whose lending is supposed to fuel the recovery.

• The nation's 7,408 smallest banks overall broke about even during the quarter.
• The 579 mid-sized banks, loosely defined as holding assets between $1 billion and $10 billion, recorded an average loss of about $3 million during the quarter.
• The biggest 112 banks, those with more than $10 billion in assets, recorded an average profit of nearly $42 million, according to the FDIC's latest figures.

Only three new banks were formed in the three-month-period ending in September, the smallest quarterly total since World War II.

Christopher Whalen, a noted bank analyst at Institutional Risk Analytics, told HuffPost
the situation in the banking industry is "pretty gruesome." His firm tracks the overall level of stress in the sector via an index -- and Whalen said U.S. banks haven't seen today's levels of stress since the 1930s. It's "much worse" today than during the savings-and-loan crisis of the early 1990s, he said.

He cautioned that the fourth quarter, which ends Dec. 31, is going to be even worse. While economists and the administration point to economic indicators that suggest the economy is slowly improving, Whalen said that banks always trail behind the rest of the economy.

"We're going to have a bloodbath," he said. Banks were under pressure during the third quarter to cut costs and increase revenue because of the federal government's "stress tests" in the spring -- exams that gauged the health of the country's 19 biggest banks. Federal regulators were trying to determine which banks needed to raise more money. Revenue was a key component of the formula.

So banks tried to outperform in order to avoid being forced to raise more money, Whalen said. Indeed, expenses across the industry fell and profit increased. But next quarter, banks on solid footing will aggressively write off their bad loans -- driving up losses -- and those in a more precarious position will simply continue to "muddle along," Whalen said. Either way, he predicted, lending will continue to fall.

"That's the problem for the economy. We've got probably a third of the industry that's contracting," Whalen said. "They're not making new loans, they're basically in a defensive posture, and that's not going to change."

READ the report below:

Quarterly Banking Profile -

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Faced With Strong Banks And Weak Credit Markets, Treasury May Be Rethinking TARP

2009-11-24T07:55:17Z

WASHINGTON — Big banks are roaring back.

At crisis' edge last year, they are repaying billions of dollars dumped into their vaults to rescue them. Dividend checks are accumulating at the Treasury. Taxpayers won't recoup the full sum of the government's unprecedented infusion to the financial sector, but the returns are ahead of schedule.

Cenk Uygur: Knocking Down The Biggest Excuse For The Bailout

2009-11-24T05:00:40Z

Everyone's heard it a hundred times by now. Joe Biden said it when he was on The Daily Show last week. Tim Geithner says it every time he's on television or in a congressional hearing or in the car talking to himself. "We had to do the bailout. We didn't have a choice. The economy would have collapsed. What else could we do? It was unpleasant, but we had to bailout the largest banks."

Now, some might disagree with that. I don't. I agree we had to do something, and if we hadn't the economy probably would have cratered. But that's not the question or the problem at hand. The problem is how they did the bailouts. Namely, by giving away the store.

The government's own inspector general of the TARP program says that we gave away $62 billion we probably shouldn't have - and will probably never get back. Anyone with any degree of sanity now realizes giving away this money to AIG counter-parties at hundred cents on the dollar was either crazy or complicitous. This was taxpayer money funneled to the largest banks in the world to cover their ill-conceived bets that would have never netted them their whole money back on the open market. If capitalism had prevailed, they would have gotten burned on most of that money. Instead cronyism reigned and they got every penny - from us.

To add insult to injury, Goldman Sachs says they didn't need that money from us, that they were covered no matter what because of other bets that they had out in the market. Great. Then give us our money back ($12.9 billion went to Goldman through AIG) and go collect on your other bets. Why the hell did we pay you if you claim you could have gotten that money from elsewhere? Tim Geithner told me we absolutely had to pay you otherwise the world was going to blow up.

The Obama team has burned a lot of goodwill doing this hideous giveaway to the same financial companies that caused this economic meltdown (at least for the rest of us since the bank executives are back to making huge bonuses). If they want to earn some of that goodwill back, they have to do better than the lame excuse of "we had to do it." You didn't have to do it this way. There were many other possibilities. You could have at least structured it so that if the banks went back to making money that we received a fair share for bailing them out - any rational investor would have. You wouldn't have covered up the biggest giveaway by funneling it through AIG (and not even letting us know in the beginning who you were giving the money, too).

It's about time they explain why they chose to do it this way - where the banks got every penny they wanted and we got left holding the bill. If Tim Geithner doesn't have a reasonable answer for that soon, the populist anger calling for his job is going to be perfectly justified.

Watch TYT on You Tube

IMF Exec: Another Bailout would 'threaten democracy'

2009-11-23T08:28:36Z

Dominique Strauss-Kahn told the CBI annual conference of business leaders that another huge call on public finances by the financial services sector would not be tolerated by the 'man in the street; and could even threaten democracy.

Revisiting The Fed's Bailout Of AIG And The Benefits For Goldman Sachs

2009-11-22T02:12:22Z

A RAY of sunlight broke through the Washington fog last week when Neil M. Barofsky, special inspector general for the Troubled Asset Relief Program, published his office's report on the government bailout last year of the American International Group.

David Vines: If It Were Me, I'd Be Embarrassed

2009-11-21T13:50:00Z

It's nice to see that even after the election, conservatives are still playing the "liberal gotcha media" card every time they expose themselves as being shamefully ignorant regarding the issues they care about most.

Last Wednesday, a media firestorm erupted after a seventeen-year-old girl named Jackie was interviewed by MSNBC's Norah O'Donnell while standing in line during Sarah Palin's Michigan book signing. Jackie, wearing a shirt that read, "The US government handed out $700 billion in Wall Street bailouts and all I got was this lousy t-shirt," was caught off-guard when O'Donnell informed her that Sarah Palin was on record as supporting the bailout.

You can see the exchange below:

It didn't take long for Bill O'Reilly and Glenn Beck to feature this clip on their respective shows and praise Jackie while condemning O'Donnell for her pesky questions backed up by fact-based research. Then, Jackie was given a platform to tell her side of the story by the blog, Red White & Conservative.

To summarize:

This all started as me, a young 17 year old American going to see a woman I admire and turned into this crazy event hah I'll start at the very beginning.

She had me read my shirt and then proceeded to ask me "Did you know Sarah Palin supported the bailout" to be 100% honest I was like, are you kidding me? She is trying to use my shirt against me. I was so shocked by the craftiness she had that I was truly stumped. I asked her where she got her fact and she read her little note. Then she asked me what I liked about Sarah, and I talked about the Constitution.

In one day I met a role model, and met the liberal media and their crafty schemes. I fell prey to liberal bias, but I'd like to think I did an okay job.

As a fellow high school senior, I feel a strong urge to respond.

This notion that a reporter is being "crafty" and "biased" when they correct factually inaccurate statements is ridiculous. Sure, Jackie might have a point if O'Donnell ran up to her at random and stuck a microphone in her face as she was walking down the street, but that was not the case. This girl was at the book signing of a prominent politician, wore a t-shirt indicating that she had strong political views, agreed to be interviewed, and failed to answer a very simple and straightforward question.

The job of a good reporter is not to ask softball questions or cast everybody they speak to in a positive light. A reporter's job is to collect facts and seek the truth. So, while some may object to O'Donnell's speaking to a seventeen-year-old girl, nobody can accuse her of reporting anything but the facts.

Which brings me to my final point: Jackie is seventeen-years-old, she's not seven.

In her piece for Red White & Conservative, she feels the need to drive home the fact that she's only seventeen four separate times, as if that were some sort of defense.

Now, I understand that much of the electorate is made up of low information voters who don't closely follow politics. That's fine -- it's not ideal, but it's perfectly understandable.

But according to her school profile, Jackie is very politically involved. She is an intern with the Michigan Republican Party and is clearly excited and passionate about what her political "role model," Former-Governor Palin, represents. And yet, when she cannot correctly identify one of Palin's most basic political positions, she plays the victim and blames everybody but herself.

Then, conservative members of the media take the bait and praise her as some sort of Republican hero. They are more than happy to glorify this culture of ignorance and hide behind the veil of "elitism" and "media bias" when anyone approaches them with facts.

All I can say is that if Glenn Beck had heard me express my political views and then assumed that I was a thirteen-year-old, I would not lift the paper bag off my head for quite some time.

*Correction: It has been brought to my attention that Red White & Conservative is Jackie's own blog. It is not, as I had previously written, the blog of someone else who had given her a platform to speak.*

Senator Says Loophole In Derivatives Regulation Undermines Reform

2009-11-20T19:23:04Z

The effort to impose new restrictions on the financial system falls short of true reform if there's a gigantic loophole for foreign exchange derivatives, Sen. Maria Cantwell (D-Wash.) said Thursday.

"Most people who write about the 'comprehensive reform' -- they're missing the point, which is, you've got to have derivatives regulation," she said in an interview with the Huffington Post.

And indeed, bills being considered in Congress would bring transparency and accountability to the complex and opaque derivatives contracts that nearly brought down the financial markets last year -- by forcing them to be traded through clearing houses or on exchanges.

But the bills, based on a proposal put forth by the Obama administration, would exempt foreign exchange derivatives from disclosure requirements.

That loophole is now facing opposition in both houses of Congress.

As Cantwell explains it: "The whole foreign issue is a scapegoat. The real issue is that if you have a loophole that people can drive their tractor through, drive their volume through, you create a dark market."

This one loophole could be widely exploited, Cantwell argued, and "You can't have exemptions that are 50-80 percent of the market or it won't be reform."

Foreign exchange derivatives -- private contracts to buy or sell currencies in the future -currently make up about eight percent of the largely opaque derivatives market. U.S. firms with extensive operations overseas like Nike and Apple use them as insurance against currency fluctuations.

Virtually the entire market is traded in the shadows by the biggest banks.

Wall Street wants to keep it that way. Banks made more than $18 billion off foreign exchange derivatives in 2007 and 2008, according to a report by national bank regulator the Office of the Comptroller of the Currency. By comparison, these same banks lost about $13.7 billion during the same period from all other types of derivatives trades.

Supporters of the exemption argue that the system is working fine, and that any attempts to regulate it will simply drive the market overseas into much more opaque places, beyond the reach of meaningful regulation.

Cantwell's response to that concern: "The international community is waiting for the United States to stand up and have transparent markets before they themselves have transparent markets. Se we ought to be the beacon for how it's done, not sit around and blame foreign countries that might have dark markets."

The two leaders responsible for shepherding derivatives reform legislation through the chamber -- Financial Services Committee Chairman Barney Frank (D-Mass.) and Agriculture Committee Chairman Collin Peterson (D-Minn.) -- have committed to closing the foreign exchange loophole, the Huffington Post reported earlier this week.

In the Senate, the bill introduced by Banking Committee Chairman Christopher Dodd (D-Conn.) includes the loophole. However, since the Senate Agriculture Committee also has jurisdiction over how derivatives will be regulated (American farmers have been using derivatives for more than 100 years) it's unclear what will ultimately emerge from the Senate.

"This is a long battle," Cantwell said. "It's like a porous border. We've got to make sure we really are closing those loopholes."