William Cowie's  Instablog

Here's the dilemma faced by taxpayers: CEO's build empires which, when they fail, imperil the economy, society, or both. When Sandy Weill was busy building Citi into a hodge podge empire of the future, he not only was pursuing his selfish ego-based agenda, he did it in a way that added more risk than he, or his stockholders, were able to carry alone. When the failure came, as many of us knew it would, the consequences of that failure for the rest of the country were too much for the bank to be allowed to fail. Smaller banks are allowed to fail every day, and the economy, while hurting, is not put in mortal danger when that happens.

The taxpayers and our children are forced to put our futures at risk when these fat cats put us at risk with their grand designs earmarked by more greed than common sense. The fat cats, in contrast, scoop hundreds of millions of dollars from these corporations and usually are long gone when their houses of cards fold. While our children are in hock, they live the high life. Clearly, this is not a good state of affairs for our nation.

In the past, our protection came from banking-oriented laws, rules and regulations. However, we have to face the possibility that megalomaniacs may use debt to build other empires that imperil the nation. For example, if GE decided to add a few defense contractors to its already eclectic portfolio, and do it with debt, the next recession might take them out. At that point, being deemed TBTF (Too Big To Fail) taxpayers might then be stuck with another bailout bill or we all suffer. The irony: they get rewarded for putting the nation at risk, and they receive no sanction.

http://www.foxnews.com/politics/2009/04/08/tea-party-protests-create-online-sales-boom/

April 15 is approaching.

Nobody's supposed to know when we've hit the bottom until well after the fact. This bear, though, has just been killed with a super-weapon never seen heretofore: PPIP

PPIP adds profits to the banks, as pointed out by several people, for example:

http://seekingalpha.com/article/129639-ppip-watch-banks-as-bidders-and-sellers-hmm-remember-enron#comment-460861

So the Obama administration pretty much fired Rick Wagoner. That's not all. They insist that American workers and bond holders must make financial sacrifices before they receive any government money.

Why are we following different rules on Wall Street? AIG took billions of taxpayer money and paid their counterparties 100 cents on the dollar. Why did we not insist that those counterparties give up a discount of 10% or more? These counterparties, at first guarded so zealously, are outfits like Goldman Sachs and foreign banks. These folks are eminently more able to hand back a bil or two than American wage earning workers. If auto bondholders have to settle for 20 cents on the dollar, why not Big Bank bondholders? The argument that bank bondholders have suffered losses (because their prices are down) is nonsense - no bondholder has been forced to surrender his bonds at a huge loss.

Why is it OK for this administration to ask American workers/ voters/ taxpayers to give up money, but not OK to ask Goldman Sachs (who paid their CEO $69 million in one year) or foreign banks to even take a discount of 20 or 30%?

And why is nobody else asking this question? Where are the journalists?

WFC's earnings surprise - is it a surprise? Not to some. Oh, don't get me wrong, none of us foresaw it so quickly and so dramatically, because we believe there is still muck in them thar balance sheets. Why are we not surprised? The answer lies in PPIP.

When we started the bailout, the thought was something like this: we'll lend the banks money, only we'll call it capital, so they can boost their capital ratios. (We thought of buying stock, but that would equate to nationalization and we all know what firestorm that idea caused.) Capital means they don't have to repay the money. Only, they really did have to repay it, so we nudge, nudge, wink, wink, didn't call it a loan. Well, it's not a loan and it's not stock, so what is it? Let's just call it a tarp, which is equity capital that has to be repaid. Uh, OK, if you say so. So, that's what we did.

Then the executives got caught with their hands in the cookie jar when bonus time came around. When they got called on the carpet on that fateful day in February, they all came away saying: we're gonna repay those bleepity bleepity tarps if it kills us. This bonus restriction thing is not a happening deal. Get Timmy on the line. We need to figure out a better plan.

Some know the story of the man, looking under a street lamp for something. A passer by asks, "What are you looking for?"

"My wallet," the man replies.

"Where did you drop it?" the stranger asks.