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February 08, 2009

The Banking Rescue - Secrets, Lies and Campaign Contributions

Friedrich von Blowhard writes:

Dear Blowhards,

The biggest problem the U.S. has in politically fixing the problems of the banking system is that the taxpaying citizen has been carefully denied any real insight into the actual financial situation of the major banks. This makes it impossible to objectively discuss such questions as “what are bank assets worth today and under a variety of scenarios going forward?” This in turn makes it impossible to consider “how big would a bad bank have to be?” and “how much recapitalization would current institutions really require?” and “would it be cheaper to let the old banks go under and start new ones?” The political insiders have a total monopoly on such knowledge and they are quite carefully hoarding it.

Perhaps the really disturbing thought here is that, given how much time they seem to spend confabbing with senior Wall Street bankers, it’s genuinely possible that what the Geithner-Bernanke team think they know comes entirely from what the eager bailoutees tell them. After all, remember that the US government appears to have felt that Citibank was well capitalized after the first round of TARP money and prior to its first emergency injection of additional capital until the bank management called them up and explained otherwise.

Is it any wonder that anyone with a brain and a modicum of experience in the real world is, um, just a tad suspicious of getting seriously ripped off under the cover of this informational iron curtain? One particularly well informed observer, Roger Ehrenberg (former trader, former investment banker and currently a venture capitalist) calls a spade a spade in his posting YOU, the U.S. Taxpayer, Can't Handle the Truth at his blog Information Arbitrage:

Consider this comment from Rep. Brad Miller, a Democrat from North Carolina and a member of the House Financial Services Committee:

"If we had regulators go in an examine the books like we did at Fannie Mae and Freddie Mac a great number of our systemically important financial institutions could be insolvent."

And this is exactly what Mr. Miller and Treasury Secretary Geithner want to avoid; the transparency necessary to figure out exactly where the industry stands, in order that a proper prescriptive can be put in place to begin real healing, not some illusory band-aid that will only set us up for greater suffering down the road. For a member of the House Financial Services Committee to make a comment like this only highlights the disconnect between the politicians and the real problem: dealing with the systemic insolvency that threatens our country. Mr. Miller would have you believe that putting our collective heads in the sand is a better approach. He is just so wrong.

He knows the problem is there, but is unwilling to face into the truth. He thinks we can't handle it. Reality is, we can handle the truth: it's he and his scared-out-of-their-minds Congresspeople
that can't handle the truth. We need some different people making the big decisions. They appear too big and too important for our small-minded Congresspeople to make.

Perhaps it is simply, as Mr. Ehrenberg puts it, that our congressmen and senators are too small minded and timid to deal with the situation, but I have a hard time accepting that. Their apparent incompetence and the Stalinist stranglehold they have applied to keep vital information out of the hands of the people who will be paying the bills has benefited, continues to benefit, and seems likely to benefit in the future the single largest contributor of campaign funds and lobbying cash: the financial services industry.

Coincidence? I hardly think so. I hope at some point the U.S. public wakes up and smells the coffee: the average citizen has been reduced to being merely a convenient place for the financial services industry (and a variety of other favored groups) to pick up the money. If the broader public want policy that protects their interests, Congressional funding must be taken out of the hands of special interests that currently buy outrageously favorable treatment for trivial amounts of cash. If having the public foot the bill for the cost of congressional and presidential elections would have avoided even half of the destruction of private wealth we've seen over the past year, this cost would have paid for itself hundreds or thousands of times over.

If you want publicly minded legislators, put them (and their campaigns) on the public payroll. The current system is no way to run a railroad…except right into the ground.



posted by Friedrich at February 8, 2009


If having the public foot the bill for the cost of congressional and presidential elections would have avoided even half of the destruction of private wealth we've seen over the past year, this cost would have paid for itself hundreds or thousands of times over.

Within this statement lies a very ugly reality. Our sainted Obama is probably the most personally corrupt President in my lifetime. He deliberately refused to accept public financing so that he had no limits on campaign contributions. The fiction is that his 3/4 billion came from small donations. This is BS. His campaign contributions came from the old reliable sources.

The "bailout" is pure payback to his cronies. The personal corruption of the Obama administration is so deep and systematic that Congress will have to turn a blind eye to avoid impeaching him. Expect many more Blago type characters to pop up in the coming years.

Other commenters are sure to rush in to claim that this is just Republican obstructionism. So, try to keep this in mind: Bush did the same damned thing. He greased the skids for this heist with his own bailout payoffs to his cronies.

With both parties in on this thievery, what is the citizen to do?

Posted by: Shouting Thomas on February 8, 2009 10:28 AM

I'd be much happier with the post above if the phrase "Stalinist stranglehold" were replaced with something more accurate ... like "Super Capitalist stranglehold" or "Trickle down stranglehold" or "Laissez faire stranglehold" or just "wealthy elite stranglehold."

Posted by: Chris White on February 8, 2009 10:42 AM

Chris, I think Friedrich would agree on the overall economic effect of the stimulus -- laissez faire instead of Stalinist -- but I think he was referring specifically to the stranglehold on information. A Soviet-style obfuscation of information available to the citizenry.

Posted by: kgaston on February 8, 2009 11:17 AM

Um, the confidence of the American taxpayer would be nice, but it's the confidence of the rest of the world that's an absolute necessity in order to keep the American economy upright.

The USA has had an unprecedented increase in the standard of living over the last few decades. On a GDP basis, the 20% percentile in the USA is better off than the 50% percentile in most of Europe.

Did you think that came for free?

No, it came because the USA is absolutely unafraid to put the metal to the floor in almost every area of innovation, the risks be damned.

And most of the time it pays off, like it has for the last 50 years, pushing the USA *way* beyond any other country on the face of the planet.

But sometimes, the innovation blows up in your face.

And now it has.

So, do you try to finagle your way around it, hoping confidence keeps the eggs in the air long enough to build some sort of soft landing underneath it, or do you go to the citizenry and tell them that it's time to cut back *permanently*. Time to stop pretending that they can have a standard of living way above the rest of the world.

How about we start rolling back those other innovations that could put us all at risk? Mono-culture farming and genetically modified organisms anyone? Let's quadruple food prices, but at least we'll be safe.

What about electronics? One small tac-nuke high up in the wrong place might destroy the US by frying all our delicate electronics that *everything* relies upon. (Fancy being without electricity for 2-3 months while we rebuild the distribution control system?)

And these are simply the risks we *know* about. It's the risks that almost no-one anticipates that are the one's to really nail us.

And yet, that risk is the cost of living an American standard of living.

If I was a politician interested in not getting lynched, I know what I'd be doing. Bring on the confidence game. (Which is one reason why I'm not a politician.)

And Moira, let's get a little real. The average manufacturing job that provided a good living in the 1950's still provides a good living... at a 1950's standard of living. Which, by the by, is well below what most people would consider a modern day poverty line.

Unless you can make manufacturing *much* more efficient (which means vastly less workers), those jobs are hardly worth having. You cannot do 1950's jobs and expect a 1990 standard of living.

And what do you know... Some American manufacturing *is* alive and well (well, as well as anything is these days). Except its very high tech and employs 1/10 the number of people than 50 years ago.

The question is really what can we get people doing that is worth $250,000 a year to the company so we can afford to pay them something like a median wage?

Posted by: Tom West on February 8, 2009 12:43 PM


We agree in a sort of way, but you've really got to go read Steve Sailer's articles on how the subprime mortgage scam was sold.

It was sold as part of the diversity mania.

It seems to be impossible to get this through your head. Very ugly, awful things get sold to people by telling them that they are doing good.

The subprime mortage mess was created through a Stalinist campaign of indoctrination that penetrated every aspect of society. This did not happen as part of the normal functioning of the free market system.

I was there in the midst of this crap in the mid 90s. The corporate world was riddled with lunkhead "diversity consultants" telling us every day that racial and sexual quotas were going to produce incredible profits. They didn't have a fucking clue what they were talking about.

You are just plain wrong, Chris, in attributing this madness to the normal functioning of the free market. The executives and politicans found that the diversity crusade opened the door wide to a new kind of corruption. I don't think you've ever been in a corporate boardroom or executive office, Chris.

The do-gooder stuff turned out to be a godsend for the thieves. Ponder this for a while. You really seem totally incapable of comprehending this. Your do-gooder philosophy was the trigger for all of this. The do-gooder philosphy makes you a sucker. We all got suckered by the halo preening that surrounded the diversity scam.

Posted by: Shouting Thomas on February 8, 2009 1:11 PM

If anyone can point to a place and time in Western Civilization where there was more information available or less obfuscation please attempt to make your case. It seems obvious to me that we have access to more raw information (surrounded by exponentially more obfuscation) than ever. The freedoms we hold and relative openness of most industrialized governments, aided by technology, allows wide availability of facts. It also allows for ever-expanding obfuscation; obfuscation from government officials, political party insiders, talk radio pundits, the MSM, the alternative press, and opinionated farts like us here bloggers.

The primary difficulty is that there are many different understandings about what constitutes "facts" or separates them (if, in fact, they can be separated) from articles of faith or creative statistical analysis. Currently we are in a moment when there is widespread acceptance of the fact that there is a world wide economic crisis and something must be done to overcome it. Of course, different philosophies come to very dissimilar conclusions about what outcomes might be the most likely to occur if we take particular proposed actions.

I cannot think of a plausible outcome of the 2008 election cycle that would have resulted in a vastly different "stimulus" plan (and interlocking "bailout" plans). Trim some spending here, make it a bigger tax cut there; does it really matter? Maybe, maybe not; who knows? Our great-grandkids will still be arguing about which economists were more right or wrong about what we're doing now, just like we still do about FDR and the New Deal. The course we've been following [global free market capitalism] is going unquestioned and the ship charting and sailing that course [international banking & financial services industry] is being patched up for another voyage. Let's call it what it is, "Stalinist" skews the discussion in a non-productive way.

P.S. to S.T. - maybe when I stop chuckling I'll respond.

Posted by: Chris White on February 8, 2009 1:35 PM

Tom, you know what the equivalent of 1950s factory jobs are in 21st century America? "Hands on keyboards" type of jobs like programmers and system admins. As much as I enjoy fiddling with websites, I'm basically on a digital assembly line, assembling data and pixels to make a digital product. This type of job affords me a middle-class lifestyle, much like a factory job in the 1950s afforded factory workers a middle class lifestyle.

Posted by: JV on February 8, 2009 5:07 PM

The CRA banks (banks that participate in the Community Re-investment Act) are mandated that 15% of new development (a new subdivison) has to be "affordable" housing when they underwrite a developers loan to build a new subdivision.

What this means in practice is that in a regular suburb that is lower-middle to middle class will have the nice houses (1800 sq. feet to 2500 sq. feet) built FIRST, and then that last two streets of the subdivision (which may unfortunately be near a main road so everyone driving buy your subdivision SEES them) will be full of vinyl siding, 1100-ft. condos, or even friggin duplexes, few of which will even have garages. You didn't move into your subdivision EXPECTING THAT. These small vinyl-sided houses might get to eventually have Section 8 people in them or become HUD homes, bringing in the underclass to what is usually lower middle and middle class subdivisions, hurting the equity of the other homes one street over. Think about it gents, you have several streets of brick and stone houses with garages that are decently landscaped and then a couple of streets of vinyl, no garage, junky cars-in-the-driveway-toys-in-the-yard-tacky-lawn-accoutrement-lower-class(ness). Its an assault on the resale value (equity) of the striving lower middle and middle class.

Its funny how entire counties are protected from this that are where the truly wealthy live isn't it?

The same CRA banks are the only ones allowed to buy out other banks when they expand, which makes it much cheaper for them to do so instead of having to build new bank buildings, ATM machines, hire and train new employees, which is the harder way. Since the CRA is "invested" with these banks, you can bet that these banks KNOW they will probably be bailed out if too many of their loans go to hell, which they were. The CRA banks like BoA are also the ones the kowtow to illegal aliens and dont requre SS#'s, will let you deposit cash in the ATM, will give you loans without proof of citizenship, and generally do everything in their power to help illegals break the damn law. These banks get bailed out.

Banks that do it the old fashioned way get screwed.

Guess who is the biggest campaign contributer to congress? The banks and I-banks. Is it any wonder we have been so throughoughly screwed over. WE SHOULD HAVE NEVER HAVE DEREGULATED THE BANKS. By doing so, banks stopped paying you inflation-beating interest on your CD's and long-term savings instruments, thus forcing you to put your money on Wall Street if you wanted your savings not to lose value. Wall Street built a huge bubble with this money, and now has pretty much screwed us all. This monetary policy punishes savers and people who worked hard to pay down their debt and rewarded the financially irresponsible, and this bailout package is a simple continuation of that (plus some very partisan political pork).

Banking policy (the Community Reinvestment Act) is both monetary and social policy because it spreads poverty out into the lower middle and middle classes and shields the upper middle and upper classes from the same. We need to end $25,000-a-plate campaign dinners and various other ways that the elite get around existing campaign finance laws. Campaign contributions should be INDIVIDUAL olnly and should not exceed about five thousand bucks. This would ensure that 500 dollars that YOU gave actually had some punch in the electoral process instead of being almost meaningless.

Oh, and one more thing...............campaign contributions should BE PERSONAL. I cannot believe I could google my goddamn name and eventually follow the various links and find out which candidates from both parties I gave money too. Thats infuriating. Your employer can hold this against you. My immediate boss is a major league pain-in-the _______. I'd hate for her to see whose congressional campaign I supported, etc.

Posted by: miles on February 8, 2009 6:09 PM

jv, I think you're right. The assembly line has turned into the data line.

I will say that a factory worker in 2009 can easily be a middle class job as well, as long as he's doing the work that would have required 10 people in 1950 thanks to having a large amount of capital investment behind him.

Posted by: Tom West on February 8, 2009 9:48 PM


I just took the liberty to reprint in full what you wrote about Richard Duncan in your November 21 2008 blog posting. As you can see if you check out my blog, I have given you credit and also provided a current link to your blog.

If you would like me to take down this reprinting of your posting, just let me know and I will do so.

Howard Richman

Posted by: Howard Richman on February 9, 2009 9:45 AM

Public financing of politics is a cure worse than the disease. Now, it is possible for a self-financed outsider to bring down one of the permanent political class. Public financing would limit insurgents and and incumbents to the "same" finance levels - except that incumbents would retain their enormous edge in name recognition, favorable press coverage, and off-books support from friendly NGOs.

Some unions, for instance, get election day off for their members. "Organizers" like ACORN drum up voter-registration and GOTV drives in favorable areas, and get $millions in grants for "unrelated" activities.

Posted by: Rich Rostrom on February 9, 2009 4:50 PM

I did only a quick and dirty search, but I suspect Information Arbitrage has taken Miller's quote out of context. I see no evidence that his comment was prescriptive rather than descriptive.

Rich: Public financing of politics is a cure worse than the disease.

Alas, yes. The already entrenched interests can easily channel their "contributions" away from direct campaign financing; the restrictions would fall on some hapless little blogger with a paypal button.

Tom - And Moira, let's get a little real.

Tom, have you considered consulting a neurologist about this addressing of detailed rejoinders to people who aren't there? Imaginary people, and the opinions you fabricate for them, cannot, by definition, "get real".

On a happier note, it's very nice that you are aware of productivity gains in, and capital requirements of, modern manufacturing.

Posted by: Moira Breen on February 12, 2009 11:12 AM

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