Friday, July 3, 2009

Happy Independence Day to the Republi-CON Party

Watch The GOP's Failure to Launch.

Class Today at NoBullU on WEBY

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The Banks (and Other Financial Institutions) are Robbing Our Future

UPDATE VII: Another I told ya so. Read the Rolling Stone, The Great American Bubble Machine, about how Goldman Sachs has engineered every major market manipulation since the Great Depression.

UPDATE VI: Ever wonder who the inside man was for the financial industry coup d'├ętat that seized control of the U.S. Treasury. Read The New York Times, Geithner, as Member and Overseer, Forged Ties to Finance Club.

UPDATE V: How much has been looted from the treasury? Read the Washington Post, IMF Estimates Cost of Financial Crisis at $4 Trillion.

And besides paying bonuses, buying toxic assets with government money, guaranteeing loans, and posting huge profits, what else is being done with our money? Read the Washington Post, Bailout Recipients Spent Millions on Lobbying, Records Show.

Once a foob, always a foob?

UPDATE IV: You might not have realized it, but our government was overthrown in a coup recently. Read The Atlantic, The Quiet Coup, and find out how the Geithner, as Member and Overseer, Forged Ties to Finance Club has effectively captured our government.

New York financial institutions are using our treasury to more pay bonuses, buy toxic assets with government money, guarantee loans, and post huge profits.

Read the Washington Post, Fannie, Freddie Budget $210 Million On Bonuses, Draw Lawmakers' Fire and Reuters, US banks with taxpayer money could buy toxic assets, The New York Times, U.S. Program Lends a Hand to Banks, Quietly, and The New York Times, Big Profits, Big Questions.

At the center of it all, Goldman Sachs, the former firm of former Treasury Secretary Paulson. The AIG bailout never made sense, except if you understood that the money was meant to save Goldman Sachs. Since early on it has been clear that payments to AIG were just a cover to get money to Goldman Sachs. And when the original terms of the bailout proved too onerous, the terms were waived for another sweetheart deal.

UPDATE III: In an editorial, Joseph Stiglitz, an economist and professor at Columbia University, and winner of the 2001 the Nobel Memorial Prize in Economic Sciences, calls the Obama plan ersatz capitalism, "a win-win-lose proposal: the banks win, investors win — and taxpayers lose." He says:

"Some Americans are afraid that the government might temporarily “nationalize” the banks, but that option would be preferable to the Geithner plan. After all, the F.D.I.C. has taken control of failing banks before, and done it well. It has even nationalized large institutions like Continental Illinois (taken over in 1984, back in private hands a few years later), and Washington Mutual (seized last September, and immediately resold).

What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess."

Read The New York Times, Obama’s Ersatz Capitalism.

UPDATE II: An update from on my post in February. Joseph Stiglitz, an economist and professor at Columbia University, and winner of the 2001 the Nobel Memorial Prize in Economic Sciences, agrees that the Obama public-private partnership to buy up to $1 trillion of 'toxic' bank assets "amounts to robbery of the American people." Read The Daily Telegraph, Geithner rescue package 'robbery of the American people.'

The winner of the 2008 the Nobel Memorial Prize in Economic Sciences, Paul Krugman, an economist and professor of economics and international affairs at Princeton University, and an op-ed columnist for The New York Times, also doesn't like the plan. Read The New York Times, Financial Policy Despair.

UPDATE: Next week Uncle Sam is expected to triple down on AIG. Read the appropriately named article in The New York Times, Propping Up a House of Cards, in which the writer predicts that the government will spend "quarter of a trillion dollars" to prop up AIG. All for the purpose of saving Goldman Sacks, the former firm of former Treasury Secretary Paulson, the focus of an initial bailout proposal that never made sense, beneficiary of over a hundred billion bailout dollars, and then a hundred billion more.

It is robbery of the future!

The government is aiding and abetting the robbery of our future by investment banks and other financial institutions. Read The Big Picture, Citigroup: World’s Worst Investment to Get Even Worse, in which Barry Ritholtz wrote:

"Losers double down.

That’s the classic trading rule which the USA is about to violate in an enormous way. According to trading maven Dennis Gartman, one should “never, ever, ever, under any circumstance, add to a losing position.”

And yet that is what we are about to do.

To review: Former Treasury Secretary Hank Paulson made a terrible investment on behalf of the taxpayers by purchasing a 7.8% stake in Citigroup (C) for an initial $25 billion dollars. He further put the US on the hook by guaranteeing against 90% of future losses on $301 billion in assets. Subsequently, we (the taxpayers) injected another $20 billion dollars.

At the time, Citigroup had a market cap of about ~$50 billion dollars. Today, its worth ~$13 billion.

So for about 100% of the market value of Citi, plus insurance guarantees worth of as much as 500% of its value (~$275 billion), we got less than 1/10 of a company that in total was worth 1/5 of our investment.

Pretty good deal, eh?

That $45 billion dollar stake now has a market value of just over a billion.

And, its about to get even worse.

Rather than do what is the FDIC-mandated-by-law thing, we will instead convert the nearly worthless common into preferred shares. The taxpayers stake will rise to near 40% of Citigroup.


“Under the terms of the deal, the Treasury Department has agreed to convert up to $25 billion of its preferred stock investment in Citigroup into common stock. It will convert its stake to the extent that Citigroup can persuade private investors, including several big foreign government investment funds, to do so alongside the government, two people close to the deal said.”

What does this do for us? Well, the higher investment stake creates an enormous incentive for John Q. Public to continue to pour money into Citi, regardless of valuation. The inept banking giant then has access to infinite amount of capital, courtesy of you, the 1040 filers.

Its just another example of why these insolvent banks should be nationalized, or for you squeemish free marketers, FDIC mandated, pre-packaged Chapter 11, government funded reorganization.

If Obama continues to listen to the god-awful advice of Larry Summers and Tim Geithner, he will doom his presidency, and finsh marginally ahead of George W. Bush on the list of worst presidents.

This is not change we an believe in . . ."

Let me say again, the taxpayers paid $45 billion dollar for stock in an investment bank that now has a market value of only about $1 billion.

It is bank robbery of taxpayers. The government is robbing our future to save the Ponzi scheme that was Wall Street. The banks know it. Read The Baseline Scenario, Robbery Note - From The Banking Oligarchs This Morning, in which Simon Johnson, former chief economist of the International Monetary Fund, a professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics, wrote:

"The modern bank robber calmly hands a note to the teller, asking for money and making a moderately specific scary threat. The robber, of course, expects the teller to hand over unmarked bills without a fuss.

This morning’s “research” note from a major international bank is entitled, “Falling Short: The government needs to buy toxic assets,” and the heart of their one page argument is, with the emphasis as in the original,

One main stumbling block to the purchasing of troubled assets has been pricing, specifically how does the government price a diverse set of assets in a way that does not put the taxpayer on the hook. However, this should not be the standard by which we judge the efficacy of the plan, because a more prolonged deterioration in the economy will result in a higher terminal unemployment rate and a greater deterioration of the tax base. As such, the decline in tax revenues will crimp many of the essential services provided by the government. Ultimately, the taxpayer will pay one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line to pay for the massive debt issuance required to fund current and prospective fiscal spending initiatives. We think the government should do the following: estimate the highest price it can pay for the various toxic assets residing on financial institution balance sheets which would still return the principal to taxpayers.

Tell me if you think I am overreacting - it has been a difficult week - but I interpret this as saying: “give us as much money as you can, or else.” And the “or else” appears to be unemployment up around 20% and debt/GDP in the red-for-danger zone.

Can bankers really trump the American government in this fashion? It’s painful to read, but probably helpful that the oligarchs put their cards (and notes) on the table so brazenly. This is, after all, a critical fight to save American democracy, and it’s good to know what we are up against."

All the while the investment banks and other financial institutions pay dividends and bonuses, and have lavish retreats and their CEOs get 'golden parachutes.

This is why it is time to refresh the tree of liberty.