Would You Believe?

Krugman stops by the 'stress test' issue and the leaks around them and I believe he is probably correct. The leaks around the 'stress tests' are merely a way to see how much bad news the public is willing to swallow on this. Sad commentary if true.

Alternatively, there’s Yves Smith’s version: these are all trial balloons to see how outsiders will react to different stress reports.

But that just adds to the bad feeling about all this. Even Brad DeLong, who has been relatively sympathetic to the administration here, is disturbed by the idea that regulators are negotiating with the banks about the test results. Now it seems as if the report’s contents may also be dictated by what, based on the response to leaks, the informed public is willing to swallow. (”Would you believe it if we say Citi is fine? OK, what if we say they need $5 billion? Not enough? How about 10?”)

As an aside, you can visit The Onion and see what satire is like when it is really close to home.

Bad Faith Squared

Jane Hamsher at Firedoglake has the whole deal but if what she is saying is true then Citigroup and BofA have reached the bottom of the sleaze barrel and have punched through the bottom.

As Yves Smith and other predicted, BofA and Citigroup have already begun gaming Tim Geithner's private-public partnership plan (the Public/Private Investment Partnership, or PPIP). Remember our old pal Stanford Kurland, who milked Countrywide for $200 million, and is now financed by Blackrock to buy up toxic mortgages at thirty cents on the dollar? The New York Post says companies like his are being outbid -- by BofA and Citigroup.

Now remember, TARP money was supposed to "unfreeze" the credit market and be used for lending. And the PPiP plan was supposed to get the toxic assets off the balance sheets of the "too big to fail" banks, at prices of .50 to .60 on the dollar, because the banks didn't want to take the hit of selling them at what they are actually worth. But instead, BofA and Citi took the TARP money and bought more toxic assets:

The Vultures are Back

Cookie Jill pointed this out in the comments and it really wasn’t the best way to start the day:

Whether they deserve to be or not, Countrywide Financial and its top executives would be on most lists of those who share blame for the nation’s economic crisis. After all, the banking behemoth made risky loans to tens of thousands of Americans, helping set off a chain of events that has the economy staggering.

So it may come as a surprise that a dozen top Countrywide executives now stand to make millions from the home mortgage mess.

Stanford L. Kurland, Countrywide’s former president, and his team of former company executives have been buying up delinquent home mortgages that the government took over from other failed banks, sometimes for pennies on the dollar. They get a piece of what they can collect.

“It has been very successful — very strong,” John Lawrence, the company’s head of loan servicing, told Mr. Kurland one morning last week in a glass-walled boardroom here at PennyMac’s spacious headquarters, opened last year in the same Los Angeles suburb where Countrywide once flourished.

The next thing we are likely to hear is that George Bush and Darth Cheney have teamed up and formed a company to sell cheap Bibles for big bucks to the families of those killed in Iraq with the name of the lost loved one inscribed in gold. Oh! and if you buy two you get a genuine picture of Shrub in his flight suit with the "Mission Accomplished" banner. with a simulated signature, of course.

Unbelievable.

It's Called Fraud

Let me see if I have this straight. AIG insured a bunch collateralized debt (subprime mortgages, etc.) and for doing that they made a lot of money, a big pile of it. When it turns out that the value of all these CDO's was crap and AIG was required to come up with the money, they didn't have it.
AIG was/is an insurance company that guaranteed a bunch of stuff but they never really had the money to cover their promises.
That's fraud in my book and everyone at AIG that took money for underwriting all this worthless stuff when they surely knew better needs to be made very poor and spend some time in the hoosegow. They sure as hell don't deserve any of the taxpayer's money.
This privatizing the wealth but socializing the risk thing is way, way out of hand.

Kicking Them While They're Down

If you can judge from the rant of CNBC's Rick Santelli against the mortgage bailout, the wingnuts still don't get it. Letting the mortgage crisis continue to fester is not going to help any of us. Yeah, yeah, a lot of the people that are going to get help probably didn't make the wisest choices when buying their homes but the banks and mortgage lenders have a lot to answer for. Let's face it, if you didn't have the financial resources to buy the house you did and yet were given a mortgage anyway then whose fault is it? Is standing by and watching the further collapse of the housing market going to do any of us any good?

We are talking a lousy $75 billion(a couple of weeks of Shrub's war) here compared to the trillions either given directly to the banks or committed in some other way. Get a grip. If you think the banks are equal partners in this mess and deserve some slack then take a look at this and then maybe rethink your position.

Edited to correct usage.

First, Arthur Santa-Maria called Bank of America to ask how to check the balance of his new unemployment benefits debit card. The bank charged him 50 cents.

He chose not to complain. That would have cost another 50 cents.

So he took out some of the money and then decided to pull out the rest. But that made two withdrawals on the same day, and that was $1.50.

For hundreds of thousands of workers losing their jobs during the recession, there’s a new twist to their financial pain: Even when they’re collecting unemployment benefits, they’re paying the bank just to get the money — or even to call customer service to complain about it.

Thirty states have struck such deals with banks that include Citigroup Inc., Bank of America Corp., JP Morgan Chase and US Bancorp, an Associated Press review of the agreements found. All the programs carry fees, and in several states the unemployed have no choice but to use the debit cards. Some banks even charge overdraft fees of up to $20 — even though they could decline charges for more than what’s on the card.

The bastards deserve any scorn they receive especially after taking our money.


h/t Ballon Juice

A Little Valentine

It seems we have a little Valentine in the stimulus plan that I wasn't aware of. I think it is a good thing but it appears that Wall Street is a little grumpy over it.

WASHINGTON — A provision buried deep inside the $787 billion economic stimulus bill would impose restrictions on executive bonuses at financial institutions that are much tougher than those proposed 10 days ago by the Treasury Department.
The provision, inserted by Senate Democrats over the objections of the Obama administration, is aimed at companies that have received financial bailout funds. It would prohibit cash bonuses and almost all other incentive compensation for the five most senior officers and the 20 highest-paid executives at large companies that receive money under the Treasury’s Troubled Asset Relief Program.

.......

“These rules will not work,” James F. Reda, an independent compensation consultant, said on Friday. “Any smart executive will (a) pay back TARP money ASAP or (b) get another job.”

So the banks 'could lose some top talent'...from my perspective it would appear that that is exactly what needs to happen.

Chicken Dancing

This is going to go over about as well as a screen door on a submarine. Morgan Stanley and Smith Barney are in the final stages of their merger and have decided that in order to retain all those "superstars" that screwed the business to the wall, knocked 50% off yours and my retirement savings and set the country/world up for a financial disaster deserve AWARDS. They would have been called BONUSES just a short time ago but us whiny common folk are kind of sensitive to the "bonus" word now that we have been totally screwed. They just can't seem to understand why we would be a little stressed over two failed investment banks, that have received $60 billion in federal bailout cash, plan to pay their obviously incompetent people more of our damn money. How silly of us!

Sam Stein reports:

The soon-to-be-merged financial giants — Morgan Stanley and Citigroup's Smith Barney — announced the payments during an internal conference call last week, but warned advisers against describing them in terms that would cause PR headaches.

"There will be a retention award. Please do not call it a bonus," said James Gorman, co-president of Morgan Stanley. "It is not a bonus. It is an award. And it recognizes the importance of keeping our team in place as we go through this integration."

Like I said in an earlier post...incompetence(theft?) should have consequences and it sure as hell shouldn't be a f**king reward. Why do they think there's nothing more important than keeping all these folks in place? Are they worried that some other financial institution that is rolling in cash is going to steal them away? Are there that many other lucrative opportunities in the rest of the financial industry?

Note: "Chicken Dancing" is just a term I use for stupid things.

Not a Good Sign

The markets are not reacting favorably to Geithner's plan to fix the markets. As of this writing they are down below 8,000 or down 288. Losses on the Dow were down as far as 312 at one point. We'll see what the rest of the day brings but initial indications are that the Administration missed the target.

Here is the NY Times summary of the plan. Below are the main points.

• A new program, jointly run by the Treasury and the Federal Reserve, with financing from private investors, to buy up hard-to-sell assets that have bogged down banks and financial institutions for the past year. The program, often described as a “bad bank,” is expected to spend $250 billion to $500 billion.

• Direct capital injections into banks, which would come out of the remaining $350 billion in the Treasury’s rescue program.

• A vast expansion of lending program that the Treasury and Federal Reserve had already announced, which is aimed at financing consumer loans. The two agencies had originally announced their intention to finance as much as $200 billion in loans for student loans, car loans and credit card debt. Instead the program will be expanded to as much as $1 trillion.

• A separate $50 billion initiative to enable millions of homeowners facing imminent foreclosure to renegotiate the terms of their mortgages is to be announced next week.

What is not addressed are the conditions for further support of the already insolvent banks and what the impact on current management are. I don't see enough pain here and the fact that the markets aren't impressed is a bad sign. We'll have to wait and see more analysis but people smarter than I.

Taking Care of His Own

Ian Welsh at FDL has an initial look at the new Geithner plan for the banks and let's just say it isn't too nice. It is a worthwhile read but here is the operative paragraph.

In other words, taxpayer money will be used to prop up banks. The same executives who caused the problems will be allowed to continue paying themselves huge bonuses for destroying the economy and bankrupting their banks and they won't be forced to use the money to lend to actual consumers. Nor will shareholders be replaced so that taxpayers investing hundreds of billions and taking on trillions in risk can have all the upside instead of all the upside[sic] (yes, they'll probably get some shares. They should get 100% ownership. You should get 100% ownership. It's your money Geithner's spending).

I can't say this really gives me a warm and fuzzy feeling. This is not what I expected from an Obama administration.

Note: I think that second upside should actually be "downside"

Citibank and Bank of America: Pay Attention

Citi and BofA, this is how it is supposed to work. Perform or you're history. The government is now the largest shareholder and they are doing what should be done and that is clean house. Limiting salaries is a start and perquisites have to be next but dumping overpaid board members has to be a priority as well. There should be consequences for sitting there and doing little more than cash in while the banks went down the tubes.

Philip Hampton, the new chairman of Royal Bank of Scotland, is wielding the axe in the loss-making bank's boardroom in a determined effort to exert his authority over the troubled operation.

Seven non-executives are expected to leave the board as Hampton roots out some of the longest-standing members of a board that presided over as many as 24 acquisitions during the eight years in which ousted chief executive Sir Fred Goodwin was at the helm. The taxpayer will soon own 70% of the bank.

The dramatic clear-out of the RBS board will include the long-standing non-executive directors Peter Sutherland and Bob Scott, the senior independent director who was the main point of communication for disgruntled shareholders.

The former Treasury mandarin Sir Steve Robson is also expected to depart along with Jim Currie, Janis Kong, Charles Koch and Bill Friedrich.

Their departures will signal a major change in the management of RBS, which the former chairman Sir Tom McKillop was forced to defend last year when he declared there were "no patsies" on the board.

Three new government-approved non-executive directors will join the board as stipulated by the government as a condition for the injection of £20bn of taxpayer funds. Those appointments were being finalised last night and could be announced as soon as today.

Partying On Your Dime

Bank of America spent about 10 million of your dollars on a really big Super Bowl party. What a great use of tax payer money! Wasn't that dip just great and the wings were to die for! What? You didn't get any?

Despite a near collapse that required $45 billion in federal taxpayer bailout funds, Bank of America sponsored a five day carnival-like affair just outside the Super Bowl stadium this past week as President Obama decried wasteful spending on Wall St.

The event – known as the NFL Experience – was 850,000 square feet of sports games and interactive entertainment attractions for football fans and was blanketed in Bank of America logos and marketing calls to sign up for football-themed banking products.

The bank staunchly defended its sponsorship, saying it was a "business proposition" and part of its "growth strategy."

[snip]

The bank refused to tell ABC News how much it is spending as an NFL corporate sponsor, but insiders have put the figure at close to $10 million. The NFL Experience was on top of that and was inked last summer, according to the bank.

The NFL said it was a "multi-million dollar" event and that it was also spending money to put on the event. A Super Bowl insider said the tents alone cost over $800,000.

The bastards just don't get it, do they?

Who Loves Ya?

If you ask me it seems the American banks have displayed a shocking amount of disrespect to the to the American taxpayer:

“SANTA CLARA, Calif. – Banks collecting billions of dollars in federal bailout money sought government permission to bring thousands of foreign workers to the U.S. for high-paying jobs, according to an Associated Press review of visa applications.

The dozen banks receiving the biggest rescue packages, totaling more than $150 billion, requested visas for more than 21,800 foreign workers over the past six years for positions that included senior vice presidents, corporate lawyers, junior investment analysts and human resources specialists. The average annual salary for those jobs was $90,721, nearly twice the median income for all American households.

The figures are significant because they show that the bailed-out banks, being kept afloat with U.S. taxpayer money, actively sought to hire foreign workers instead of American workers. As the economic collapse worsened last year — with huge numbers of bank employees laid off — the numbers of visas sought by the dozen banks in AP’s analysis increased by nearly one-third, from 3,258 in fiscal 2007 to 4,163 in fiscal 2008.”

Looks like the only thing the American banks want from the American worker is his or her money paid by some other employer. Just another reason to seriously rethink the whole concept of saving their lousy butts and the stockholders that invested in them.

Wait A Minute!

Dear President Obama... can we talk?

SAO PAULO — General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker.

According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to “complete the renovation of the line of products up to 2012.”

“It wouldn’t be logical to withdraw the investment from where we’re growing, and our goal is to protect investments in emerging markets,” he said in a statement published by the business daily Gazeta Mercantil.

Give Up Mr. President

I don't want to presume to give advice to President Obama, who is obviously more politically astute than I, but I do have a suggestion.

Now that we know, regardless of the concessions on corporate tax cuts and family planning, that the Republicans are committed to voting no on the stimulus package why don't the Democrats and President Obama just craft the best package they can and pass it. Throw out all the sop to the GOP that we know from experience won't stimulate anything except a few fat cats and do it right. Obama has tried to play nice but the Republicans are dead set against a stimulus package that has an even chance of getting us back on track, so screw 'em. The Democrats control every branch of government. That's why we just had an election and why we sent the GOP packing. We have seen the results of their economic stewardship and it sucks. They aren't going to co-operate and no matter what is in the package they are going to oppose it.

Get rid of the useless tax cuts that won't do anything for the economy and put that money into urban rail and public transportation.
Put some of the money into helping people who have lost their jobs and help them keep spending.
Put back the provisions to allow bankruptcy judges to adjust mortgages.
Put money in to help the states and local governments keep essential services going.

If the Republicans want to add to the package meaningful changes that will, in fact, help us move in the right direction then add them in but don't put in crap to appease them because they will not be appeased.

When President Obama goes to the hill today to conference with the GOP he should lay it on the line. It's his game now and if you want to play you will have to play by his rules.

Similar take from Josh Marshall and Kos

GOP--No Price is Too High to Prevent a Win By Obama

Krugman in the NYT is a must read:

As the debate over President Obama’s economic stimulus plan gets under way, one thing is certain: many of the plan’s opponents aren’t arguing in good faith. Conservatives really, really don’t want to see a second New Deal, and they certainly don’t want to see government activism vindicated. So they are reaching for any stick they can find with which to beat proposals for increased government spending.

Some of these arguments are obvious cheap shots. John Boehner, the House minority leader, has already made headlines with one such shot: looking at an $825 billion plan to rebuild infrastructure, sustain essential services and more, he derided a minor provision that would expand Medicaid family-planning services — and called it a plan to “spend hundreds of millions of dollars on contraceptives.”

But the obvious cheap shots don’t pose as much danger to the Obama administration’s efforts to get a plan through as arguments and assertions that are equally fraudulent but can seem superficially plausible to those who don’t know their way around economic concepts and numbers. So as a public service, let me try to debunk some of the major antistimulus arguments that have already surfaced.

Krugman does a good job of debunking the arguments. Everybody who is interested in the passage of Obama's stimulus package needs to read this column. Once again the Republicans are demonstrating why they lost the White House and both houses of Congress. They are lying, which appears to be the only pony in their show. They don't care that Obama's efforts to stimulate the economy are based on sound economic principles and are desperately needed if we are to avoid a depression. What they are afraid of is success by Obama and by extension the Democrats. Success in reviving the economy by the Democrats now in power will destin the GOP to the political wilderness for a generation or more. They know it, and preventing an Obama success is more important to them than the survival of the American economy. They don't care if you and I starve, lose our cars, houses and or life savings.

The complete destruction of the American economy is a small price for them to pay in order to stop Obama from winning the battle over the economy.

Nothing But Muggers In Sharp Suits

I have absolutely no problem with people getting a bonus when they are part of a team that helps a company make a profit. I myself had part of my overall compensation in the form of a bonus based on earning goals. During my last year with the company I did not get any bonus because we didn't meet our earnings goals, which was fair enough, so this business with Merill-Lynch just really frosts me. Now we find out that these criminals(that is the correct word) paid out $15 BILLION in bonuses last year with nearly $4 BILLION of it in December. What really makes this insane is that this comes on the heels of news that the former CEO spent $1.2m on decorating his office. Click on the link and see the details of the remodel including the 87 grand for a freaking area rug.

They have the nerve to try and tell us that they had to pay out this money to "retain" top talent. What a laugh. If you work on Wall Street you are lucky to just have a job. I'd sure like to know where all this "top talent" would go if they didn't get their big bonus. To pile lie upon lie they are also insisting that this wasn't tax payer money from the $20 Billion bailout. Hello, money is fungible people. This is really despicable and the government should demand the bailout money back. You can read more here.

PEBO Asked and Received

Obama challenged Paul Krugman the other day for some specifics and today Paul gives him some answers. Here are some ideas for beefing up the stimulus discussions that are worth a read. He concludes:

...my advice to the Obama team is to scrap the business tax cuts, and, more important, to deal with the threat of doing too little by doing more. And the way to do more is to stop talking about jump-starts and look more broadly at the possibilities for government investment.

I really want to see something positive come out of all this discussion and it sure looks like there is going to be some positive dialogue. As Krugman says the middle class tax cuts were a campaign promise but they won't do a thing for folks like me and the other 11 million of us that are income challenged at the moment. Not saying I am keen about grabbing a shovel and building roads but I think I could bring value to such things as health care automation and some other technology related infrastructure things. The numbers out there that says we will have 7-8% unemployment going on for three or four more years with the existing plans are not too encouraging to say the least.

What No Rubber Stamp?

This is encouraging. We might actually see some real honest to goodness dialogue on how best get the necessary stimulus going in the economy. This is a really big piece of legislation and if it is done right is going to make the difference in all our futures. If it is done wrong we are all screwed. Passing major legislation should be a negotiation and discussion of competing ideas and not just a rubber stamp as it has been the last 8 years.

President-elect Barack Obama's economic recovery plan ran into crossfire from his own party in Congress on Thursday, suggesting that quick passage of spending programs and tax cuts could require more time and negotiation than Democrats once hoped.

Senate Democrats complained that major components of his plan were not bold enough and urged more focus on creating jobs and rebuilding the nation's energy infrastructure rather than cutting taxes.

[T]he broad support [Obama] has enjoyed so far for the basic concept is now being tested as the specifics become clearer. While conservatives criticize the high spending, and moderate Democrats express concern about the swelling deficit, liberals are pushing for even more money devoted to social programs, alternative-energy development and road, bridge and school construction.

Harkin and Conrad want to see more infrastructure investments. Kerry wants to alter the employment tax credits. Other Democratic senators expressed other competing concerns to transition team officials. This is all constructive and needed discussion. We already know experts like Krugman and Stiglitz are concerned that it is focused too heavily on tax cuts and not nearly big enough. Let's talk it out.

No one is arguing the importance of acting quickly but it's very important for Congress to engage and follow a collaborative process in which an administration and leading lawmakers engage in some back-and-forth. There is some talk on the right and in the media that this is the beginning of the typical Democratic circular firing squad but as far as I can tell this is legitimate discussion and policy debate. It's called "governing." Granted, we have not seen much, if any, of this stange process in the last 8 years but it really is how it is supposed to work.

John Cole at Balloon Juice had some good input on this: "Maybe the Republicans will pull their heads out of their collective asses and decide that in the wake of the DOW dropping 80,000 points and massive unemployment and five quarters of negative growth there is something more important than capital gains tax cuts, Elian Gonzalez, Terri Schiavo, and the fairness doctrine, and join in the debate and act for once in good faith and with the best interests of the country in mind."

Pretty radical idea but one can dream.

We Need a little Class Warfare

Let me see if I understand this. We are giving them billions of dollars of our hard earned money to fix the global economic meltdown that they caused and they still think it is OK to take bonuses and fly on their private jets just like they were the heroes of the day? These people have absolutely no shame. They have just sent the entire global economy into a nosedive and vanished billions of dollars into thin air. They are getting bailed out and basically rewarded for their stupidity and greed by the rest of us -- the people who get to take the bus to work if we are lucky enough to even have a job. It's insanity.

From the AP:

"Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.

The rewards came even at banks where poor results last year foretold the economic crisis that sent them to Washington for a government rescue. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.

Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.

The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines."

Read the while article... there are all kinds of interesting bits, for instance. Banks that took bailout funds paid for their executives' private financial advisors, club dues, home security systems, and chauffeurs and leased cars. Here's what passes for an explanation of all this:

"Goldman Sachs' tab for leased cars and drivers ran as high as $233,000 per executive. The firm told its shareholders this year that financial counseling and chauffeurs are important in giving executives more time to focus on their jobs."

Don't grumble too much though and for Goddess' sake don't mention that just maybe they ought to be taxed a little higher or you will be accused of fomenting class warfare. Just shut up and pay.

Some Good News

At last some good news from the White House!

WASHINGTON – The Bush administration came to the rescue of the troubled U.S. auto industry Friday, offering $17.4 billion in loans in exchange for concessions from carmakers and their workers.

"Allowing the auto companies to collapse is not a responsible course of action," President Bush said. He said that a bankruptcy was unlikely to work for the auto industry at this time and would deal "an unacceptably painful blow to hardworking Americans" across the economy.

The whole idea of an "orderly bankruptcy" was nonsense and a bad idea from the beginning. This is not a normal time for the economy and and additional burden on the economy like losing the American auto industry was insane. The automakers need to rethink their business but it is going to take longer than a few weeks to get it done. This news should help the markets today and going forward toward the end of the year.