An Obama Speech to Light Wall Street on Fire

When one or two banks have a problem, shame on them. When all banks have a problem, shame on the system. Banking executives are getting way too much of the blame for this crisis. Subprime didn’t begin with these executives. It began in Washington. The packaging of loans did not begin on Wall Street. It began in Washington. It’s time to call a duck a duck. Washington got us into this mess with bad policy and bad regulation and the only way out is to fix the policy and fix the regulation. We have all been brainwashed into believing that taxpayers are giving Wall Street a bailout; no, no, no. If it was two banks I would agree, but it’s the whole system. Taxpayers are paying for the failed policies of our own leaders. If you’ve been asking yourself why we haven’t had a crisis like this before it’s because we’ve never had to deal with these laws before. The unintended consequence of increased regulation post Enron has killed our banking system. This new method of transparency is faulty and we cannot afford it any longer. It will throw us into a full fledged Depression.

AIG’s latest request for additional funding reveals very clearly what the underlying problem is. Short term writedowns of long term assets. This foolishness messes with the balance sheet in ways that are not indicative of its long term strength. If Obama wants to end this madness and fix the system we should look for the following solutions:

1-Recognize the root of the problem. Yes, Wall Street was too exposed to these toxic assets, yes Wall Street utilized too much leverage but they are not the only ones to blame. This crisis is the result of a perfect storm of mismanagement on Wall Street but also mismanagement in Washington. Wall Street is doing their part to fix things. Now Washington will do our part. We will usher in a new era of improved transparency. Underlying mortgages are performing much better than the mortgage securities reflect. We will do away with the mark to market accounting regulation that was implemented post Enron as we have come up with something even better that gives us a more accurate view of what these banks really own. This new method of transparency fall under the jurisdiction of the Federal Reserve as they are the entity to deal with bank panics, I am confident in their ability to find solutions.

2-Nationalization is not an American ideal. Those of you who are for nationalization should pack your bags and head elsewhere. America is a place where free markets will endure and thrive. Our success is dependent on the private sector. Our former Treasury Secretary Hank Paulson thought that he was running a hedge fund and that he needed to provide taxpayers with common equity in the institutions we were helping. Hank took his eye off the ball. The government should never find ourselves in a position of owning a majority stake in one of these banks. Never. When we loan money to help a troubled institution we will craft terms that encourage quick repayment but we do not need common shares of stock that will cause dilution to current shareholders and limit future growth. We know that we are helping a bigger cause. The real benefit to taxpayers is a strong banking system that will build the foundation of an economic recovery. Hank was chasing nickels while dollars rolled out the door. Taxpayers have been focusing on billions while we lose trillions. The days of requiring a short sighted stock repayment to the U.S. government are over.

3-Confidence will be restored. By fixing the bad mark to market regulation that is currently is place, we have eliminated any short term threat of bank failure. Balance sheets are strong. Lending conditions will improve. Private capital will return. Small businesses and individuals will have access to capital that will bring our economy to new levels of prosperity. If our nation were to take over these large financial institutions and try to fix them ourselves it would be chaos. This is not Sweden. We would risk losing entire executive teams who would abandon their banks in unison. CEO’s like Ken Lewis at Bank of America (BAC) and Jaime Dimon at JP Morgan Chase (JPM) want no part of a government takeover. We would lose these bright men. Instead of losing them, we will give them the tools they need for success. This is a new era of change, we are building a new economy to meet our modern day demands. Bank of America, JP Morgan Chase, Wells Fargo (WFC), Citigroup (C), AIG, and all of the other banks who support our economy will return to greatness.

Disclosure: Long BAC

Comments

[User 363582:]

This is pure idiocy. Mark to market accounting rules did not cause this crisis. What caused this crisis was the decision during the Clinton administration pushed by Robert Rubin to not regulate derivatives, especially credit default swaps. This allowed a crazy proliferation of off balance sheet liabilities that kept expanding and kept creating huge piles of income. It became an unregulated, undocumented, unaccounted for insurance industry ten times as large as the world's regulated insurance industry.

Can you imagine what the consequences would be of not regulating, or even requiring the disclosure of insurance companies' capital reserves? If you look at AIG, that's sort of what happened. They only had to disclose their liabilities on regulated insurance contracts and not on unregulated credit default swaps. If I sold insurance that I personally underwrote, I could make millions of dollars working part time. I'd just not clearly disclose to anyone how much insurance I wrote and what my capital was to be able to pay out claims. I bet I could make $10 million in the next two years with one part time assistant.

The problem with not requiring the banks to mark assets to market is that we guarantee bank deposits through FDIC. The Fed also prints fresh money to hand to banks. Banks don't have to participate in the federal reserve system and they don't have to take FDIC insurance. Banks that don't want to mark to market can simply opt out of the system and do their own free market thing.

But the banking system in the United States doesn't work like that. It's a hugely government-operated system where the banks get their money to lend at low rates from the big money printer (Federal Reserve) and then charge a higher rate to the public to borrow its own money at a higher rate than the people's government loaned it to the banks at. Right now Americans are paying 5%, 7%, 9%, etc. to borrow money from banks that are getting the same money from the Federal Reserve printed out of thin air and lent to them at 0.5%.

That is not a free market capitalist system.

I agree with one of the other posters. Yes, let's have a free market solution. Let these banks rot and go bankrupt. No taxpayer money to the banks. But also no accounting frauds to pretend they are solvent when they aren't and to increase their risk and leverage while insured by FDIC and taxpayer money. I'd like to see all the banks that received TARP money go bankrupt.

And how can someone like Schwartz who writes "Geithner's Superfund is the Real Deal" talk about free market capitalism? I think Schwartz should pack his bags and go to another country along with Geithner. Free market capitalism means that ordinary taxpayers don't get bilked to provide loans and assistance and gifts to rich bankers and investors.

There will almost certainly be riots and civil unrest when the deeper unemployment and poverty sets in and the fresh memories of trillions in tax dollars squandered on rich, greedy pigs sear the memories of the newly poor.

Feb 24 03:11 PM

[jt dodge:]

when these big firms were sheltering themselves from paying the american people it's rightly owed taxes, where were they. oh yea, they were asking for an F*n bail-out.

Jason, your one of them. how dare you stick up for that lot of greedy thieves.

they need our stimulus money. we need honesty, adherence to tax policy and some jail space.

regulation is the answer not the problem.

Feb 24 03:21 PM

[Amouna:]

Thanks for sharing common wisdom!

See, the matrix for re-distributing wealth has been HUGELY skewed during the past ten years and is becoming even more increasingly so, with hard working, saving families giving their life savings to subsidize billionaire tycoons and private equity/HF millionaires on Wall Street and elsewhere. Another american revolution is in the making, and its only a matter of time before it bursts.


On Feb 24 03:11 PM User 363582 wrote:

> This is pure idiocy. Mark to market accounting rules did not cause
> this crisis. What caused this crisis was the decision during the
> Clinton administration pushed by Robert Rubin to not regulate derivatives,
> especially credit default swaps. This allowed a crazy proliferation
> of off balance sheet liabilities that kept expanding and kept creating
> huge piles of income. It became an unregulated, undocumented, unaccounted
> for insurance industry ten times as large as the world's regulated
> insurance industry.
>
> Can you imagine what the consequences would be of not regulating,
> or even requiring the disclosure of insurance companies' capital
> reserves? If you look at AIG, that's sort of what happened. They
> only had to disclose their liabilities on regulated insurance contracts
> and not on unregulated credit default swaps. If I sold insurance
> that I personally underwrote, I could make millions of dollars working
> part time. I'd just not clearly disclose to anyone how much insurance
> I wrote and what my capital was to be able to pay out claims. I
> bet I could make $10 million in the next two years with one part
> time assistant.
>
> The problem with not requiring the banks to mark assets to market
> is that we guarantee bank deposits through FDIC. The Fed also prints
> fresh money to hand to banks. Banks don't have to participate in
> the federal reserve system and they don't have to take FDIC insurance.
> Banks that don't want to mark to market can simply opt out of the
> system and do their own free market thing.
>
> But the banking system in the United States doesn't work like that.
> It's a hugely government-operated system where the banks get their
> money to lend at low rates from the big money printer (Federal Reserve)
> and then charge a higher rate to the public to borrow its own money
> at a higher rate than the people's government loaned it to the banks
> at. Right now Americans are paying 5%, 7%, 9%, etc. to borrow money
> from banks that are getting the same money from the Federal Reserve
> printed out of thin air and lent to them at 0.5%.
>
> That is not a free market capitalist system.
>
> I agree with one of the other posters. Yes, let's have a free market
> solution. Let these banks rot and go bankrupt. No taxpayer money
> to the banks. But also no accounting frauds to pretend they are
> solvent when they aren't and to increase their risk and leverage
> while insured by FDIC and taxpayer money. I'd like to see all the
> banks that received TARP money go bankrupt.
>
> And how can someone like Schwartz who writes "Geithner's Superfund
> is the Real Deal" talk about free market capitalism? I think Schwartz
> should pack his bags and go to another country along with Geithner.
> Free market capitalism means that ordinary taxpayers don't get bilked
> to provide loans and assistance and gifts to rich bankers and investors.
>
>
> There will almost certainly be riots and civil unrest when the deeper
> unemployment and poverty sets in and the fresh memories of trillions
> in tax dollars squandered on rich, greedy pigs sear the memories
> of the newly poor.

Feb 24 03:28 PM

[Vox Rationalis:]

Burke and Herbert is a local bank near Washington DC. It had record profits last year.

Record profits. In 2008. Not all banks have these problems.

Certainly there are thousands -- literally thousands -- of banks out there that did NOT overload on bad mortgages, that did NOT write CDS, that did not over-leverage themselves. Read your local papers, listen to your radio stations. You'll hear about them. They're the small banks that chose to really know their customers. They didn't fudge documents. They didn't sell and resell and resell option ARMs. They didn't try to make millions of dollars for their officers. They are responsible and their banks are in doing just fine.

By the way, there are some larger banks that are doing just fine as well. Their stock prices may not show it, but their financials do.

Don't you dare say that the big banks shouldn't bear the majority of the blame.

Feb 24 03:30 PM

[nudirt:]

An alternative way of sharing responsibility among Wall Streeters and politicians would be to have both types swinging from lampposts.

Feb 24 03:39 PM

[User 363608:]

The bankers that rode off with tens and hudreds of millions while KNOWING their securities were toxic and bound to implode some day will only behave with patriotic concern for investers under one condition:

THEY HAVE TO RETURN ALL IF NOT THE MAJOR PORTION OF WHAT THEY "EARNED" DURING THE RIP-OFF DAYS.

Nothing else will deter them as they search for new ways to rake it in, with or without taxpayer underwriting. Short spells in Club Fed won't do it nor will new regulations they'll figure out how to bypass in short order.

ONLY MAKING THEM POOR like the suckers they milked will accomplish the job of prevention.

If they're so "bright" why were they totally blind to the disaster they spawned?

Feb 24 03:42 PM

[Mad Hedge F...:]

The Senate Banking Committee holds hearings while Rome burns. The S&P Case-Shiller Home Price Index showed a Q4 fall of -18.2%, the sharpest decline in its 21 year history. Prices in San Francisco fell by 31.2%. We got within 100 points of a 6,000 handle on the Dow this morning, and a print there would have sparked a global stampede to the restroom. But Bernanke managed to assuage fears today, prompting a 234 point rally in the Dow. All ears are on Obama tonight.

Feb 24 05:09 PM

[schlumpf:]

Great, there is one not short and not Dr Doom.

Feb 24 05:15 PM

[scorp99cam:]

You are foolish if you think Washington forced any of these banks to screw up the way they did. It was a failure of risk management in the banking sector and a short term vision over the company. Any executive in charge of these failing institutions should be fired and their banks broken up and sold off as pieces so we don't have to play the "too big to fail" game ever again. What does the title have to do with your article anyways?

Feb 24 05:36 PM

[Jeff L.:]

Many forget the banks are paying a 5% dividend and 15% stock warrants for TARP money (with funds the Fed Govt currently can only lend at 2-3%). TARP money was extended to many strong banks to fund lending (at 8 - 10X the TARP investment) to help grow the economy. Citi and AIG are disasters but to paint the entire industry with one brush isn't fair or accurate. Schwarz hit the nail on the head here. Remember Henry Cisneros pushing banks to increase lending to fud the American dream "a home for every American..."

Feb 24 09:51 PM

[who:]

Another ranting article written by someone who wants their stocks to go back up.

Real value of the banks - how can you do that without market to market. Value base on purchase prices, face value, end value!? When the underlying is falling the assets are not worth what was paid for instead they worth the sale value which are probably less then 50cnt to the dollar. The rules can be changed but does reality change? The cat is out of the box. Liquidity can only address by open market auction. Buyers will want some return for the risk they are taking.

Your article is correct in that short term solutions are not going to hold water as in the case of AIG exemplifies.

Nationalization would be better since that is what is happening but without the control. $180 billion in AIG is not taking over the company? Shareholder dilution is sad but necessary part of the game. Shareholders should have got out long time ago. Looks like Uncle Sam and the whole system is in for shock if the stories of $60 billion losses are true.

Feb 24 11:35 PM

[venividivici:]

Ahh Jason Schwarz, you really are a trimmer, mate. As usual you have done yourself proud with your latest offering.
In your September 16 article, "History Suggests The Financial Bottom May Be Near", you finished with a quote from your hero, Ken Lewis., when he described the purchase of Merrill as "the strategic deal of a lifetime". Basically, he paid $50 billion for a company that would have gone to nothing in a matter of days. History of course has shown that the company actually had a massive negative worth. Just today they revised their 4th quarter loss to $15.84 billion!
I can truly believe that you would be long BAC. I just worry that there are some poor souls out there who follow your advice. If they did, they would be really really poor.

Feb 25 12:44 AM

[Advill:]

Hopes, Ideas and facts, there is a dangerous world when they are bad mixed , U.S debate right now is "WHAT KIND OF ACTION WILL BE EFFECTIVE" and believe me that I do not envy Mr. Obama and their team, the damage is so great, the confusion about what value is, right now is killing the hopes and ideas of a big portion of citizens, tha amount of toxic assets is so huge that is unbelivable what Fed and other regulatory bodies were thinking.

Right now we are not behind ideas (after XXX billions of US taxpayer dollars) problem is not the money, problem is believe, is thinking there is a future to work and suffer for. At the moment this "future" view is nowhere, if nationalization or changing car wheels for square ones I don´t mind if it works.....what could work is the question, time is running.

Feb 25 05:53 AM

[Advill:]

Hopes, Ideas and facts, there is a dangerous world when they are bad mixed , U.S debate right now is "WHAT KIND OF ACTION WILL BE EFFECTIVE" and believe me that I do not envy Mr. Obama and their team, the damage is so great, the confusion about what value is, right now is killing the hopes and ideas of a big portion of citizens, tha amount of toxic assets is so huge that is unbelivable what Fed and other regulatory bodies were thinking.

Right now we are not behind ideas (after XXX billions of US taxpayer dollars) problem is not the money, problem is believe, is thinking there is a future to work and suffer for. At the moment this "future" view is nowhere, if nationalization or changing car wheels for square ones I don´t mind if it works.....what could work is the question, time is running.

Feb 25 05:54 AM

[monday1929:]

Cisnrnos did not create the 80 TRILLION in derivatives that JPM eagerly created for the benefit of their executives bonuses. Please continue to read this imposter, I need you on the other side of my trades.


On Feb 24 09:51 PM Jeff L. wrote:

> Many forget the banks are paying a 5% dividend and 15% stock warrants
> for TARP money (with funds the Fed Govt currently can only lend at
> 2-3%). TARP money was extended to many strong banks to fund lending
> (at 8 - 10X the TARP investment) to help grow the economy. Citi and
> AIG are disasters but to paint the entire industry with one brush
> isn't fair or accurate. Schwarz hit the nail on the head here. Remember
> Henry Cisneros pushing banks to increase lending to fud the American
> dream "a home for every American..."

Feb 25 04:47 PM

[monday1929:]

Jason,
I now realize that you are the greatest satarist of our time. I did not understand that your "columns" are masterful satires, skewering the deluded beliefs that Americans held until they realized they had been scammed by the ELITES. Good show, jolly good show.

Feb 25 04:49 PM

[monday1929:]

I believe you are correct. Jason may be a mouth -piece for some powerful interests who wish to, ever so slightly, spin this debate. Either that or he is raving mad.


On Feb 24 05:28 PM CNBC Sucks wrote:

> The press and the Republican Party? Schwartz is the press and the
> Republican Party.
>
> ?????

Feb 25 04:52 PM

[Barking:]

wow...what a complete tool this jackoff is.....and BOA is going to $2.00 NOT $20.00...you ought to take a big position in Fifth Third & Huntington while you`re at it....

Feb 25 11:59 PM

[Goushi:]

Still waiting for that "fire" Jason.

You are a TOOL and a FOOL for Obama

Feb 26 05:44 AM

[Smilin' Jack:]

Nationalization is bad, but endless "injections" of government (taxpayer) capital are good? Washington didn't cause this mess by approving sub-prime loans to people with low FICO scores, or by securitizing those loans. Wall St Investment banks and ratings firms did by packaging garbage (exotic ARM's and NINJA Loans) and calling them investment grade, and selling most (but not all) of them to downstream suckers. And the real driver was the trillions of mystical derivatives and CDS sold by scammers who never expected (or could afford) to pay off their bets.

These shareholders (like Lehman) deserve mroe than a haircut, they deserve a full shave with a straight razor. There are plenty of competent bank managers at mid-size banks who understand banking, who could do a fine job with some DIP financing after the big banks have either raised their own capital or filed for managerd bankruptcy. And AIG and the other CDS marketeers shuold be allowed to sink as well, so the markets can finally get a handle on what is real and what is going missing in protections...

Feb 26 11:04 AM