wall street bailout

A couple of news items from that noted right wing message machine--MSNBC.

First, this..AIG’s turmoil depletes Obama’s political capital

President Obama's apparent inability to block executive bonuses at insurance giant AIG has dealt a sharp blow to his young administration and is threatening to derail both public and congressional support for his ambitious political agenda.

I notice my own Senator, Chris Dodd, has finally found his voice about this debacle.

I warned them this would be met with an unprecedented level of outrage," Sen. Christopher J. Dodd (D-Conn.),

No, Chris, What should generate an "unprecedented level of outrage" is that you wrote the TARP bill and failed to put appropriate safeguards in the bill to protect the taxpayers.

In October the Hartford Courant wrote 

 And whether you call it a bailout or a rescue of the U.S. economy, the Connecticut senator's fingerprints are all over it. 

Do we need CSI:DC to figure out why there isn't effective compensation limits written into the TARP bill? Oops opensecrets might have an answer. $175,000 in reasons for leaving AIG honchos alone.

Maybe that's why you "pulled a Plaxico" 

Well, he's not alone "Jive talkin""Brother Gibbs" assured everyone he "was confident" he knew what AIG was doing with its $100 Billion plus in bailout cash. Right.  

You know, maybe properly staffing the Treasury Department might be more important than insulting Rush Limbaugh right about now.

So we know the Obama team is flailing around dealing with AIG.

 We can be sure today's meme is : We inherited this from Bush.

MSNBC offers a different take.   

In a story entitled Congress played major role in AIG bonus mess they point out the roots of the meltdown of AIG were planted before George W. Bush set foot in the White House.  The reason AIG collapsed was it was overexposed in insurance of exotic derivatives that went poof along with the mortgage securities that were their underlying asset. And why was this market so weakly regulated? 

After the 1998 collapse of Long Term Capital Management, a giant hedge fund that pioneered the use of derivatives, the Fed engineered a rescue to prevent the unwinding of risky bets from spreading to the larger financial system. That brought calls for tighter regulation of derivatives, including a push for greater derivatives regulation at the Commodity Futures Trading Commission, led by a former Wall Street attorney named Brooksley Born. 

But strong opposition to the proposal from then-Fed Chairman Alan Greenspan and senior Clinton administration officials sank the idea. On Dec. 21, 2000, President Clinton signed into law the Commodity Futures Modernization Act, which further eased restrictions on derivatives like credit default swaps.

The new law cleared the way for an explosion in credit default swaps. In the first half of 2001, there were $632 billion in credit default swaps outstanding, according to the International Swaps and Derivatives Association. By the second half of 2007, that number was up 100-fold — to more than $62 trillion.

So much for the "greatest economy ever". And if I recall correctly Lawrence Summers--now Obama's "adult" on economics policy--was Treasury Secretary then.

I'll make one final point on the "we can't sue. They have a binding contract". This comes from an old banking lawyer.

Yes. You. Can. 

You may lose the suit. You may pay more to the executives. You will pay lots of legal fees (Wall Street law firms are laying people off: think of this as a stimulus program). But a bank can and will undertake litigation for strategic reasons where the chance of success is remote.

Why. Moral Hazard.  

Screw the AIG execs. Let them sue you in a court in Manhattan where half the jury pool are going to be folks laid off from Wall Street. Good luck.

You make the cost of doing things you don't want so high other people don't try it.  That's how you prevent "moral hazard".  The Obama team has set a very dangerous example in the AIG bonus debacle; they are rule bound sissies who let themselves be rolled rather than picking a fight they could lose. 

Hope Vladimir Putin and the mullahs in Teheran weren't watching. 

In recent days we've had a lot of hand wringing about how Republicans "need to listen to the Obama team" and "need to respond to their criticism".   We've even seen some editors here adopt that sort of stance.

Well, folks, not so long ago I suggested the Democrats do something which was , admittedly, an effort to gain a Republican "victory"; but also intended in good conscience to improve the nation's fortunes irregardless of the party holding control of Washington, DC. 

On September 23, 2008 I posted the following advice.

Some prominent Democrats must demonstrate a level of responsibility for this disaster before Republicans allow themselves to be roped into looking like die hard Dubya loyalists.

The quid: The chairman of the Senate and House Banking Committees---Chris Dodd and Barney Frank--must relinquish their chairmanships as a condition for Republican yes votes on the bailouts.    

And there's a completely nonpartisan reason for demanding this. In 2009 we will have a new President and a new Secretary of the Treasury. The executive branch will have fresh blood who did not create this debacle (perhaps they ignored it, but...whatever) 

The people who are hopelessly compromised by their roles in Congress must step aside as well to demonstrate to America that people on Capitol Hill get the same message 

Everyone---both parties---both branches of government---is going out the door who "managed" the banking system.

For equity's sake, we can have the ranking Republicans on each committee quit too.

America needs a fresh set of folks who will have the responsiblity for getting ourselves out of this mess. It can;t be the same people who created the mess. They now have zero credibility.

And America deserves both parties accepting a share of the blame for what went wrong.

Are the egos of Chris Dodd and Barney Frank more important than our economy's future?

As Spike Lee said, Do the Right Thing

Well, we know that the Democrats did not replace their Banking Committee chairmen and decided the same people who watched the ship sink would have some clue how to use a bailing bucket.

 At the point when I posted that the Dow was trading around 11,000. It is poised to open below 7,000 today and few think we've seen the hard bottom quite yet.    The Democratic Party had an opportunity to bring in a fresh legislative team to deal with this problem and we had an obligation to the public to force this to happen. The results are rather obvious. I won't belabor the deficiencies in Obama and Geithner's decisions to date; but if there was an opportunity to change market confidence; this opportunity was lost. And replacing the failed Congressional "leaders" would have played a huge role.  

There is no confidence in the economy at present; and the erratic behavior of Dodd and Frank have made matters worse. And will continue to do so for the foreseeable future. Sure, the Democrats "won"   . But once in a awhile your opponents might be offering ideas that would work to your benefit.  I think I did.   But, I'd like to have an economy more than partisan pride. 

Remember how we the taxpayers became the primary shareholders of  AIG, the world's largest insurance firm?

Within days we might also own the largest bank in the United States.

Citigroup is taking on water fast. The stock has lost half its value in recent days and efforts to find a new investor are underway http://www.time.com/time/business/article/0,8599,1861332,00.html?xid=rss-topstories

One expert, Brad DeLong, is openly suggesting Citigroup be de facto nationalized http://delong.typepad.com/sdj/2008/11/time-for-the-go.html Given that the present market cap for a $2 Trillion institution is down to $20B,  http://finance.yahoo.com/q?s=C the out-of-pocket Treasury cost to assume full control here is a mere smidgen of Paulson's $700B slush fund.  

Now, how did Citigroup get in such parlous shape, especially when compared with the NYC rival, JPMorgan Chase?  Well, the Citi was asleep to the level of risk it had in mortgage securities. http://www.nytimes.com/2008/11/23/business/23citi.html?pagewanted=1&_r=1&em

And guess what? The prime architect of Citi's disasterous strategy was the once renowned Clintonista hard money advocate, former Treasury Secretary Robert Rubin

Citigroup insiders and analysts say that Mr. Prince and Mr. Rubin played pivotal roles in the bankʼs current woes, by drafting and blessing a strategy that involved taking greater trading risks to expand its business and reap higher profits. Mr. Prince and Mr. Rubin both declined to comment for this article.

Now where has Rubin been seen lately?...hmmm..advising Barack Obama 

http://money.cnn.com/2008/11/07/news/easton_obama.fortune/index2.htm

How does Senator Dodd. Chairman of the Banking Committee figure in all this?

a) Citigroup is the #1 contributor to Chris Dodd's political campaigns http://www.opensecrets.org/politicians/contrib.php?cycle=Career&cid=N00000581

$425,000 in lifetime contributions to Dodd.

b) Dodd said in the summer he did "not expect many more banks to fail"

 http://thehill.com/leading-the-news/dodd-does-not-expect-many-more-banks-to-fail-2008-07-14.html

Naw, just the biggest one

A few days ago , I pointed out how Democrat Chris Murphy, who received $500,000 in campaign funds from financial firms as a member of the Financial Services Committee, and then rewarded his donors by supporting the $700 Billion Wall Street Bailout, was responding to the charge with a cloying saccharin laden ad  

http://www.thenextright.com/ironman/ct-democrat-uses-saccharin-overdose-to-counter-gop-charges

Well, although I am not privy to Murphy's polls, the saccharin failed. Tonight he is up with a new attack ad trying to link his opponent to President Bush.

http://www.murphyforcongress.org/christv/help

I suppose there must be some form of moral equivalence here for Murphy.  What's wrong in his mind is a Republican president raising money for a Republican candidate. What's not wrong is a member of the Financial Services Committee following in Chris Dodd's footsteps by shaking down the firms he regulates.

I note that Murphy makes no link to Obama in his ad, just the usual MSM liberal incumbent endorsements. And that as an incumbent with a 2/1 funding advantage in a Blue State he needs to attack his opponent. To quote L.P. Berra, "sometimes you learn a lot just watching"

I did a drive to the other end of CT 5 this afternoon and there is a lot of Cappiello visibility in the Danbury area. This race may be headed back to the radar screen. 

Like the day you vote to give the tycoons on Wall Street  $700 Billion

It just might be the wrong day to put the hit on the American Bankers Association for three large. Especially when you lambasted your predecessor for soliciting cash from folks who worked with her committee, and now you sit on the Financial Services Committee. 

http://davidcappiello.com/dc/component/option,com_frontpage/Itemid,1/

The bailout is NOT going to go away as an issue for awhile, I suspect.

Ads on the politics of bailing out Wall Street are starting to hit airwaves across America. This ad just went up today in CT criticising Financial Services Committee member Chris Murphy (D- CT)

 http://www.youtube.com/watch?v=vZHfuQU6bZc

This may draw blood for a variety of local reasons. First, Murphy's 2006 campaign to unseat 24-year Republican Nancy Johnson was relentless in attacking Johnson for allegedly raising too much money from special interests. http://www.youtube.com/watch?v=7LBV1UTPQgg

Of course, as soon as Murphy got in office he went to work shaking down the exact same people to build his own multimillion dollar warchest. http://www.opensecrets.org/politicians/summary.php?cid=N00027566

He actually winks at the hypocrisy---he told radio hosts Chaz & AJ on 99.1 WPLR that the would "pander to any special interest groups besides Yankee fans"

This maniacal money chase reached the absurd this week as Murphy decided to make common cause with former Republican Governor John Rowland to host a local fundraising event. This would have been a masterstroke for Murphy but for the small problem Rowland resigned his office over a corruption investigation.   http://www.courant.com/news/politics/hc-webgovwatch0928.artsep28,0,7408215.story   Evidently, Murphy's alleged 2006 ethical purity did not survive contact with Congress.

The Cappiello ad also subtly points out that  Murphy has been financed by many of the same firms who have had his political mentor, Senator Chris Dodd, on retainer all these many years. Readers of this blog know what a train wreck this is going to be for Dodd. This week, the Hartford Courant started reporting how the wheels left the track    http://www.courant.com/news/nationworld/hc-dodd0929.artsep29,0,1341992.story

This Courant cartoon states the obvious. The financial meltdown is now the only issue in CT and here at least, some Dems have had to buy into it, big time.

Now Chris Murphy is neck deep in all this. I sure hope Nancy Johnson right about now has a nice glass of wine in her hand and a smirk on her face.