Pinning the Blame on the House Republicans 27 comments
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Jim Surowiecki has an interesting response to Joe Nocera’s contrarian idea that letting Lehman fail, far from precipitating the worst of the financial crisis, actually enabled the government to bail out AIG and otherwise increase its intervention to something approaching the needed level.
Here’s Nocera:
In the months between Bear Stearns and Lehman Brothers, Mr. Paulson and Mr. Bernanke had approached Congressional leaders about the need to pass legislation that would give them a handful of additional tools to help them deal with a larger crisis, should one ensue. But they quickly realized there was simply no political will to get anything done. After Lehman, however, Mr. Paulson and Mr. Bernanke were able to persuade Congress to pass a bill that gave the Treasury Department $700 billion in potential bailout money — which Mr. Paulson then used to shore up the system, and help ease the crisis. Even then, it wasn’t easy; it took two tries in the House to pass the legislation. Without the crisis prompted by the Lehman default, it would have been impossible to pass a bill like that.
And here’s Surowiecki:
What if Congress had passed the TARP bill the first time around, instead of voting it down on September 29th? While it’s certainly true that Lehman’s failure provoked a global panic, and in the days immediately after it went under we saw credit markets start to freeze up, stock-market sell-offs, and the like, it’s also true that the news that the U.S. government was working on a toxic-asset bailout plan for the banks actually did stabilize the markets. By Friday, September 26th, for instance, the S&P 500 Index was trading only slightly below where it had been before Lehman went under. At that point, it seemed, investors were reasonably confident that the government’s actions would bring some order to the chaos in the system.
That confidence disappeared, obviously, on September 29th, when the House of Representatives voted down the TARP.
Is it then the House Republicans, rather than Hank Paulson, who deserve most of the blame for failing to respond strongly enough to the financial crisis? Might we have muddled through fine if they’d just passed the TARP bill the first time around? After all, September 29 came after the AIG bailout, so clearly the stomach-churning stock-market implosion we saw thereafter was not necessary for the enaction of further multi-billion-dollar bailouts.
One thing worth remembering here though is that it’s pretty spectacularly unhelpful to look at the stock market as an indicator of financial well-being over the course of the crisis. The Dow hit its all-time high long after the crisis had already begun, and from then on in it was a decidedly lagging indicator. The fact that it only took a couple of weeks to implode in the wake of the Lehman bankruptcy could actually be a sign of the stock market reacting much more quickly than it had done previously.
In any case, even if Nocera is right and Lehman’s failure was in hindsight a good thing, it was at the same time a chaotic thing, and any silver lining came more through luck than judgment. I still think we’d have been better off saving both Lehman and AIG this time last year — and I still think that if Paulson had wanted to do that, he would have found a way.
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This article has 27 comments:
If Lehman made major mistakes, they should have gone through the bankruptcy courts. If AIG made major mistakes, they should have gone through the bankruptcy courts. We tend to forget that during bankruptcy the good parts of a business are sold off to healthier companies and live to prosper. It is only the bad assets that get buried.
In the case of large banks, the biggest concerns revolve around deposits. If deposits are safe, we can avoid a total melt down. Mortgages will be sold to other banks, investors and processors. The shareholders and bondholders take the hit for having faith in management that made bad decisions and lost their money for them.
I believe that we, as a nation, would be much better off today if the bankruptcy process were allowed to work. We, the people, would not be $Trillions more in debt. Yes, we needed a stimulus package to keep the country from coming apart. Yes, we probably needed to save large portions of major banks intact (while allowing the poorly managed portions to die or be sold off for pennies on the dollar), instead of trying to save the whole enchilada. Bad decisions were made in the financial industry and more bad decisions were made by government. The biggest problem now is that those bad decision-makers are still in charge and continue to make more bad decisions that will eventually need to be corrected. We are just making the problems bigger and putting off until tomorrow the pain we deserve to tollerate today.
That is all we have done so far: put off the pain until sometime in the future. We haven't solved anything.
@Urbane_Gorilla
Are you aware that the stock market continued to collapse even after the passage of the TARP. The S&P dropped another 40%. Who are you going to blame that on?
The Lehman failure was a debacle. When we bailed-out the equity holders of Merrill, and let the debt holders of Lehman get a dime on the dollar, it sent an unambigous message to the markets to push all at-risk capital to the sidelines.
This is a much bigger problem that we should blame on the entire corporate-political superstructure that has been enacting these ruinous fiscal/monetary policies for decades. Regardless of the date which TARP was or wasn't passed, eventually we have to take what's coming to us.
We should have wiped them out, and found real market pricing on the avalanche of crummy paper these crummy banks have on their sheets. Instead we've thrown good money after bad, with the added privilege of getting to pay it back over the next 30 years via higher taxes and lower standards of living. And if the Congressional Republicans tried to stand athwart these developments, then we need more like them, not less.
Likewise, I agree with the camp that says the bailouts are wrong be it Lehman, Bear, Goldman, or AIG. It should never be right to run a company to the ground and ask others to clean it up while you let them keep in operation with the same board and irresponsible management.
And now we have a new President and still no Glass Stegall or reform, a SEC trying to grift money off banks rather than punish them (even to the point of making judges take on their regulatory function), the same Greenspanish low interest rate pie in the sky Fed run by Bernake, too big to fail banks and insurance companies that are to bigger to fail, a socialized auto industry, and our housing market even more dependent on Fannie Mae and freddie Mac than before which are still taking unprecedented risks and failing, and massive spending yet again.
And rather than solve our own problems we are still running around giving billions in military aid to everyone, fighting wars abroad, and acting like the rich benefactor to the world while the EU werects trade protections against us to get out of a recession and China dumps our bonds for gold and commodity hoarding and locks their currency to ours so no matter how devalued the dollar gets US companies can never compete with them.
Wrong wrong wrong and wrong. Given: The last Republican administration was one of the worst in history and was wrong. Yet, we are still oing the wrong way.
On Sep 15 01:55 AM Moon Kil Woong wrote:
> Bush Jr. and his administration are easy to pin the recession on
> because it's true.
>
> Likewise, I agree with the camp that says the bailouts are wrong
> be it Lehman, Bear, Goldman, or AIG. It should never be right to
> run a company to the ground and ask others to clean it up while you
> let them keep in operation with the same board and irresponsible
> management.
>
> And now we have a new President and still no Glass Stegall or reform,
> a SEC trying to grift money off banks rather than punish them (even
> to the point of making judges take on their regulatory function),
> the same Greenspanish low interest rate pie in the sky Fed run by
> Bernake, too big to fail banks and insurance companies that are to
> bigger to fail, a socialized auto industry, and our housing market
> even more dependent on Fannie Mae and freddie Mac than before which
> are still taking unprecedented risks and failing, and massive spending
> yet again.
>
> And rather than solve our own problems we are still running around
> giving billions in military aid to everyone, fighting wars abroad,
> and acting like the rich benefactor to the world while the EU werects
> trade protections against us to get out of a recession and China
> dumps our bonds for gold and commodity hoarding and locks their currency
> to ours so no matter how devalued the dollar gets US companies can
> never compete with them.
>
> Wrong wrong wrong and wrong. Given: The last Republican administration
> was one of the worst in history and was wrong. Yet, we are still
> oing the wrong way.
Fannie/Freddie failed - prop up cost about $500B - they still are crippled can't make loans. So FHA has been brought on line to make risky mortgages - FHA will go under within a year.
What we have to do is fix rather replace the failed system - no one has the desire to do that. Everyone is under the mistaken notion the system that we had was great lets revive it - this is the ultimate in corruption and stupidity. What else can we expect from our totally failed economists and Fed - they simply are trying to bailout their own failed theories- debt and deficits don't matter. All of that foolishness is topped by political slogans - 'American resilience can easily overcome all this'.
All the tidbits - whether TARP was passed 3 days early or 4 days late does not matter. Alarm bells were sounded years earlier - when debt and leverage was building up, when home prices were sky rocketing – and all that was happening in broad daylight. All this was being cheered as the great America- everyone can buy a 4BR home without even a down payment - and home price double up within a few short years. You don’t have to save for retirement – your home is your saving.
The American dream has turned into an American nightmare – instead of owning a home you simply own debt now. By the time crisis precipitated it was too late- Lehman was inevitable.
And finally the direction in which the Fed is moving now - the next crisis is building - more debt, higher taxes. This must be addressed now not 2 years later, of course we will not.
(And bring our troops home, that should free up a few hundred billion.)
Look, maybe I am the dunce in the corner with the pointy hat, but here is MY take:
1) Major malinvestments were made, all under the guise of financial engineering genius, that was a product of too much college genius and ignorance of financial acumen that a homeless person grasps. Case in point, the CDS backed essentially by nothing but paper. And that reduced risk? There is too much chalk on your fingers you joker! Oooooooooh, I have a trillion dollars - do you want to borrow it? fingers crossed! A quadrillion...
2) These malinvestment created fictitious, unsustainable real estate prices.
3) The market is always right. These prices got corrected.
4) The very perpetrators of the crime conned our poorly educated masses and leaders into "making them whole" and backing the original hollow contracts with real money....our money. This was our seed corn. It has been spent on the old not the new.
This is the kicker. We just threw our seed corn away. Our crops had been destroyed. Instead of replanting our corn, we gave it to the pigs that destroyed the crops (banksters) and they ate our seed corn. Are we insane?
These pigs should have been allowed to go on diet and their crimes would have been apparent to all. Would it have been painful? Of course. Would it have been tolerable? Of course. I have capital and I am sure there are millions like me that could assemble Billions upon billions of dollars of new capital to form new banks, without selfish pigs writing contracts that are lies. And new credit would flow. Would the stocks of the old banks have gone to zero? yes. What is wrong with that?
Is there anything more idiotic than spending your capital in the face of deflation? That which would have gained value is gone. And the criminals just walked out the door whistling.
History will judge this as the Greatest Bank Robbery....the banks robbed us. Paulson will be named as the leader of the gang, but he has many associates. If you aren't disgusted and mad you are not paying attention.
On Sep 15 01:55 AM Moon Kil Woong wrote:
> Bush Jr. and his administration are easy to pin the recession on
> because it's true.
>
> Likewise, I agree with the camp that says the bailouts are wrong
> be it Lehman, Bear, Goldman, or AIG. It should never be right to
> run a company to the ground and ask others to clean it up while you
> let them keep in operation with the same board and irresponsible
> management.
>
> And now we have a new President and still no Glass Stegall or reform,
> a SEC trying to grift money off banks rather than punish them (even
> to the point of making judges take on their regulatory function),
> the same Greenspanish low interest rate pie in the sky Fed run by
> Bernake, too big to fail banks and insurance companies that are to
> bigger to fail, a socialized auto industry, and our housing market
> even more dependent on Fannie Mae and freddie Mac than before which
> are still taking unprecedented risks and failing, and massive spending
> yet again.
>
> And rather than solve our own problems we are still running around
> giving billions in military aid to everyone, fighting wars abroad,
> and acting like the rich benefactor to the world while the EU werects
> trade protections against us to get out of a recession and China
> dumps our bonds for gold and commodity hoarding and locks their currency
> to ours so no matter how devalued the dollar gets US companies can
> never compete with them.
>
> Wrong wrong wrong and wrong. Given: The last Republican administration
> was one of the worst in history and was wrong. Yet, we are still
> oing the wrong way.
The freakin' bible talks about economic collapse, debt relief, every 7 years 50 years, etc. We need less Harvard economists and more common sense.
What the heck do you call 16% unemployment, no credit demand, and tax revenues dropping 30%? Is that not collapse? Because that is where we are WITH the bailout.
On Sep 15 10:13 AM Tesa wrote:
> Mark Bern, USA would have experienced a full blown economic collapse
> if all banks failed simultaneously and that is why they spread the
> toxic assets pretty widely. The banksters know how to play this
> poker game which is pretty straight forward, when the banking system
> collapses, the entire population loses their equity so they take
> the whole population with them to the poker game.
Bottom line -- middle America was going to take a big hit either way. Your way just let the big boys off the hook.
On Sep 15 10:13 AM Tesa wrote:
> Mark Bern, USA would have experienced a full blown economic collapse
> if all banks failed simultaneously and that is why they spread the
> toxic assets pretty widely. The banksters know how to play this
> poker game which is pretty straight forward, when the banking system
> collapses, the entire population loses their equity so they take
> the whole population with them to the poker game.
All the actors in this case were in fact Republicans and they are all anti-socialists and pro capitalists. They did let GM fail and they blasted at them for having high wages and yet they let Capitalists with much higher wages survive obviously ( letting a token Lehman fail) but also because they would have taken the whole population with them just like Finland.
As we know by now at the time of this writing, a lot of AIG bonus money has been returned to the bloody hands of the Congress--whose members, of course, lie in your face and say that they returned it to "you, the taxpayer". A previously scheduled $165 million of the AIG bailout money was paid out in executive bonuses recently--and Congress screamed for blood, and whipped many in the American populace into a blood-lust, demanding that that money be given back--or else.
The Congress has decided to levy a 90% tax on all of that money which is not voluntarily returned. As AIG is a multinational corporation, some estimates at the time of this writing indicate that only about $80 million can be expected to be recovered. How is the U.S. Congress going to collect a 90% income tax from employees in foreign nations?
Furthermore, this bonus tax--which at least one bone-headed Congresswoman said should be "1,000 percent"--is utterly unconstitutional. Why? Because, first of all, it targets specific individuals, rather than specific groups, income brackets, or industries. But far more importantly, it is an after-the-fact tax--which is an utter violation of our Constitution (and which Emperor Dumbo rightly perceived would be perceived by too many Americans who could then threaten his power, which is why he "denounced" the 90% tax scheme, but then said that in spite of that the bonus payouts are a major problem and he is outraged by them).
Let's say that the genius Socialist Democrats in Congress (along with their cowardly, disgusting RINO backers) get away with raising the capital gains tax back up to some obscene amount. And then, let's say that they decide that anyone with investments who has had capital gains taxed at the lower amount for the previous five years, and who dutifully paid those taxes, now is going to be forced to pay the difference--that is, they now owe back taxes based on the new tax rate. Needless to say, that is 100% illegal for them to do.
Furthermore, let's say that these same geniuses decide that this illegal retro-taxation is only going to be implemented against certain individuals--just because they happen to be mad at them. Let's say that anyone who lives in a predominantly Republican or Conservative county in the U.S. and has capital gains is going to have to pay the illegal retro-tax; but people like, say, George Soros, don't have to pay it at all.
Does all of this sound crazy? It is--and yet, in principle, that is EXACTLY what the AIG bonus tax threat is all about. It's exactly the same thing as the clearly illegal actions described above. And our illustrious Congress, with a nod and a wink from Emperor Dumbo, is getting away with it.
But wait...there is even more to this drama of perversity. Those AIG bonus payouts were explicitly protected in the new legislation that granted the AIG bailout funds of $180 billion. Now, many of us would agree that at least some of those employees who were scheduled to get them probably did not deserve one thin dime out of them--but, that is absolutely not the point here. And to bring it up is to obfuscate and to deceive. We don't know which employees do deserve that money and which ones don't--and in this particular case, it is totally irrelevant, because the law that was passed stated that those were protected bonuses. Democratic Senator Christopher Dodd made sure of it, and Barack Obama signed it.
Now, suddenly, nobody wants to take the responsibility. Nobody in Congress now wants to live up to the most important legal and financial concept that we have ever had in the United States of America: the inviolable binding contract. It is explicitly made clear in the U.S. Constitution that the government is powerless to interfere with any binding contract once it is signed on to by the participating parties. A huge part of the government's job, in fact, is to see to it that binding contracts never get violated.
Now...the government has just been allowed to violate a binding contract that it entered into and was charged with protecting. By the government's buying up stakes in AIG, this part of those contracted bonuses became part of a contract that the government is party to.
This AIG bonus fiasco, ladies and gentlemen, is de facto Socialism. When the government can break any contract at any time, we have Socialism--the death of America, the death of liberty, the death of the American dream that says you can grow as wealthy as you want to provided you figure out how to do so and do so honestly.
This AIG bonus fiasco, along with the AIG bailout in the first place, proves that it is time to do what Americans should have done long ago: throw out the Democrats; throw out the RINOs; and put Conservative Republicans (wherever they can be found) back into power. This is our only solution in these desperate times. We call for the impeachment of all Liberal Democrats, including the Emperor, in our federal government. We demand that they give up all of their pay, all of their compensation...and all of their power. For they are totally incompetent.
----------------------...
Money without intelligence is like a car without a road.
www.intelligentinvesti...
On Sep 14 07:25 PM Urbane Gorilla! wrote:
> The day the GOP voted down the TARP bill, the markets lost $1.2 Trillion.
> Clearly anyone with an ounce of sense recognized the reaction to
> Congress' failure to pass that legislation then as a failure of
> our legislature to recognize this horrendously large problem. As
> a Republican (but not a GOP), I lay that loss firmly in the GOP's
> lap. In fact, clearly any attempt at corrective legislation by the
> Obama administration is met by hostility and heel dragging in any
> field of endeavor. Factually, the GOP (Gasbags On Parade) would rather
> see the net worth of individual Americans tank, and would rather
> see the 18% of Americans that don't have insurance suffer just so
> they can gain political points. A very sad indictment of the GOP.
>
>
> @Urbane_Gorilla
1. Letting all those jackoffs at Enron off the hook and sent unregulated baskets of quants into other sectors of the economy.
2. F*cking up the Bear Sterns problem the year before Lehman - how quickly everyone forgets...
3. Creating "special" legal frameworks to sidestep bankruptcy proceedings and provide new powers to the fed and treasury
4. Creating a culture of profit from incompetency - i.e. the "we're not bad people, we're just not responsible because we don't know what the f*ck we're doing in this complicated world...but yes, I made a lot of money this year" defense
Everyone of those firms should have gone through bankruptcy proceedings, and congress should have enacted new penalties and definitions for breach of fiduciary duty. Imagine that - individuals running firms that are too big to fail are too important to be competent or held to a standard of trust.
You haven't gotten the memo? GOP-DEM is 20th century thinking. There is only one party in Duhmerica the BIZ party. GOP-DEM are merely warring factions within the BIZ party. GOP-DEM much the same as Sunni and Shia both believe in the same larger picture, in the case of GOP-DEM its the wholesale rape of the public and treasury in favor of those they represent - the 'base' or the top 1% earners, while having a great time destroying each other in the process.
For Duhmerica to survive, and God forbid it does, it first needs to reject the Pepsi-Coke metric. Hey, Madison Ave has trained Duhmerica well, I get that. Ya gotta get past it.
I can't believe how fast everyone forgets about that $150 bil. That was the day that I became an independent when I realized that for $150 bil our congressional whores would perform any trick.
Neither party can lay blame at the others feet for this fiasco. It took many, many years to get there and years of failing to do anything about the problem that was growing.
With the banksters putting money in the congressional whores pockets all along the whores were too eager to perform tricks every year to appease their clients. Repealing Glass-Stegall was just one more trick they performed.
This problem has not been corrected, will not be corrected, until the sheeple realize that the problem with our country has to be addressed in Washington first. Washington continues to point fingers at any business in an attempt to divert attention from the real problem. THEM!!!
If we do not get campaign finance reform, term limits and a balanced budget at the least the problems will continue to plague our country until its final collapse. I strongly believe that we will never succeed without a third party because the whores will not vote for these issues. It will not please the "clients". So the prostitution will continue on capital hill until "we the people" do something.
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