Don Henley - The Heart of the Matter:
Joe Stiglitz certainly gets it, he's now getting to the heart of the matter:
Stiglitz Says White House Ties to Wall Street Doom Bank Rescue
By Michael McKee and Matthew Benjamin [Nate’s comments]
April 17 (Bloomberg) -- The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.
“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.” [BRAVO!!]
The Troubled Asset Relief Program, or TARP, isn’t large enough to recapitalize the banking system, and the administration hasn’t been direct in addressing that shortfall, he said. Stiglitz said there are conflicts of interest at the White House because some of Obama’s advisers have close ties to Wall Street.
“We don’t have enough money, they don’t want to go back to Congress, and they don’t want to do it in an open way and they don’t want to get control” of the banks, a set of constraints that will guarantee failure, Stiglitz said.
The return to taxpayers from the TARP is as low as 25 cents on the dollar, he said. “The bank restructuring has been an absolute mess.”
Rather than continually buying small stakes in banks, weaker banks should be put through a receivership where the shareholders of the banks are wiped out and the bondholders become the shareholders, using taxpayer money to keep the institutions functioning, he said. [That process is called BANKRUPTCY, HELLO?]
Stiglitz, 66, won the Nobel in 2001 for showing that markets are inefficient when all parties in a transaction don’t have equal access to critical information, which is most of the time. His work is cited in more economic papers than that of any of his peers, according to a February ranking by Research Papers in Economics, an international database.
The Public-Private Investment Program, PPIP, designed to buy bad assets from banks, “is a really bad program,” Stiglitz said. It won’t accomplish the administration’s goal of establishing a price for illiquid assets clogging banks’ balance sheets, and instead will enrich investors while sticking taxpayers with huge losses.
“You’re really bailing out the shareholders and the bondholders,” he said. “Some of the people likely to be involved in this, like Pimco, are big bondholders,” he said, [Uh, Huh!] referring to Pacific Investment Management Co., a bond investment firm in Newport Beach, California.
Stiglitz said taxpayer losses are likely to be much larger than bank profits from the PPIP program even though Federal Deposit Insurance Corp. Chairman Sheila Bair has said the agency expects no losses.
“The statement from Sheila Bair that there’s no risk is absurd,” he said, because losses from the PPIP will be borne by the FDIC, which is funded by member banks. [Exactly, except there’s no money, it’s already been spent!]
“We’re going to be asking all the banks, including presumably some healthy banks, to pay for the losses of the bad banks,” Stiglitz said. “It’s a real redistribution and a tax on all American savers.”
Stiglitz was also concerned about the links between White House advisers and Wall Street. Hedge fund D.E. Shaw & Co. paid National Economic Council Director Lawrence Summers, a managing director of the firm, more than $5 million in salary and other compensation in the 16 months before he joined the administration. Treasury Secretary Timothy Geithner was president of the New York Federal Reserve Bank.
“America has had a revolving door. People go from Wall Street to Treasury and back to Wall Street,” he said. “Even if there is no quid pro quo, that is not the issue. The issue is the mindset.”
Stiglitz was head of the White House’s Council of Economic Advisers under President Bill Clinton before serving from 1997 to 2000 as chief economist at the World Bank. He resigned from that post in 2000 after repeatedly clashing with the White House over economic policies it supported at the International Monetary Fund. He is now a professor at Columbia University.
Stiglitz was also critical of Obama’s other economic rescue programs.
He called the $787 billion stimulus program necessary but “flawed” because too much spending comes after 2009, and because it devotes too much of the money to tax cuts “which aren’t likely to work very effectively.”
“It’s really a peculiar policy, I think,” he said.
The $75 billion mortgage relief program, meanwhile, doesn’t do enough to help Americans who can’t afford to make their monthly payments, he said. It doesn’t reduce principal, doesn’t make changes in bankruptcy law that would help people work out debts, and doesn’t change the incentive to simply stop making payments once a mortgage is greater than the value of a house.
Stiglitz said the Fed, while it’s done almost all it can to bring the country back from the worst recession since 1982, can’t revive the economy on its own.
Relying on low interest rates to help put a floor under housing prices is a variation on the policies that created the housing bubble in the first place, Stiglitz said.
“This is a strategy trying to recreate that bubble,” he said. “That’s not likely to provide a long run solution. It’s a solution that says let’s kick the can down the road a little bit.”
While the strategy might put a floor under housing prices, it won’t do anything to speed the recovery, he said. “It’s a recipe for Japanese-style malaise.”
This entire article is good, one of the few where someone is hitting the nail on the head. My personal belief is that “Japanese-style malaise” is the very best case outcome.
The media and a few economists are FINALLY beginning to get to the heart of the matter. The roots. If I could boil my position on the economic mess into two themes, or meme’s, they would be that THE MATH DOES NOT WORK (Death by Numbers; When the Math No Longer Works...), and that CORPORATIONS AND THEIR MONEY NEED TO BE SEPARATED FROM THE STATE (especially central bankers; Huh? Interest Bearing Fractional Reserve Money by Fiat… Doh!; The Dawn’s Early Light… Calling all PEOPLE to get us through the night!).
Another person who really gets it and is in a position to know is William Black. Man, does he tell it EXACTLY LIKE IT IS! BRAVO, Mr. Black, you are one of the people who need to be running the show to restore REAL AND LASTING confidence in our financial system. Listen to his interview yesterday on Bloomberg by clicking on this link - William Black on Bloomberg.
And Mr. Black’s been busy, creating his own meme which I think is important enough to show you a couple of different ways:
Geithner's Stress Test "A Complete Sham," Former Federal Bank Regulator Says:
"Stress tests Total Sham" William K. Black on Fox Business:
And if that isn’t enough, here’s the interview he did with Bill Moyer - William Black on Bill Moyer’s Journal.
So, while we’re listening to truth tellers and people who get it, here’s what Martin Weiss just sent out via email regarding the “Stress Test” and health of our banks (Weiss’s firm monitors and reports on the health of the individual banks):
What Washington DOES NOT want you to know
about the true condition of America’s banks
At this very moment, more than 200 federal regulators are examining our 19 largest banks — supposedly, if you believe Washington, to determine which are strong and which are at risk for failure.
They’re reportedly asking, “Will this bank survive if the U.S. economy shrinks 2% in 2009?”
But in the first quarter, the U.S. economy contracted two and one-half times more than that — at an annual rate of 5%!
They’re asking “Will this bank fail if unemployment rises to 8.4% in 2009?”
But unemployment is already higher than that — at 8.5% and more than 600,000 more jobs are being lost each and every week!
Even the regulators’ “worst case scenario” of a 3.3% economic contraction and 8.9% unemployment is a joke:
Not only is the economy already shrinking much faster than 3.3% ... the Obama administration itself has warned that unemployment will be much higher than 8.9% this year!
Nevertheless, on May 4, our leaders will — with great fanfare, I am sure — release the results of this jury-rigged stress test. And you can be assured that it will likely say that, given these mindlessly optimistic criteria, many of our 19 largest banks are “safe.”
These phony stress tests might be laughable if only the truth behind them wasn’t so terrifying:Our own government is clearly cooking the books— using these false criteria to deceive you; hoping you’ll trust banks that are clearly hanging by a thread.
Worse — they’re so busy concocting this smoke-and-mirrors stress test that nobody’s asking what will happen... how will we cope... how will families survive when...>> The still-accelerating surge in home mortgage defaults hammers banks in the weeks ahead...
>> The new explosion in the number of defaults on jumbo loans made to prime borrowers hits the headlines as lay-offs continue to intensify, and when...
>> Large chunks of the entire commercial real estate sector go the way of GGP — the nation’s second largest shopping mall operator that declared bankruptcy yesterday.
Nobody in Washington seems to have the time to ask what will happen if and when...
Our cities are unable to provide police, fire and other essential emergency services when the credit markets shut down...
Our hospitals are forced to close their doors due to disruptions in insurance payments...
Our supermarket shelves are emptied because trucking companies can’t get short-term loans to stay in business...
Our utilities — the companies that deliver crucial electricity, gas and water to our homes — are crippled as the crisis kills the revenues they count on from corporations, and when ...
Our soaring deficits drive interest rates sky-high and gut the dollar, driving our cost of living through the roof.
QUESTION:WHY isn’t Washington asking
these all-important stress-test questions?
ANSWER:Because they already know what will happen
- and it has them TERRIFIED!
This is why I’ve warned you that, in the next phase of this crisis, literally hundreds of banks and other lenders will be pushed to the brink — and OVER the brink — demanding hundreds of billions of dollars; perhaps even trillions in new bailouts.
This is why I’ve repeatedly warned you that the recent stock market rally was nothing more than a dead cat bounce — a bear market trap — and urged you to use it to dump stocks before it’s too late.
These three gentlemen know what they are talking about and are truth tellers. Who else has been telling you the truth only earlier? Yours truly! Here’s a link to my first article on the “Stress Test.” Note the date (February 25th – nearly two months ago) and please read the content, here are the first two paragraphs:
Sorry to pop everyone’s HOPE bubble, but a stress test designed by the bankers for the bankers is nothing more than a continuation of keeping hopes high while playing hide the sausage. Who sets the parameters of the “stress test?” Who determines pass or fail? Will they use it to say everything’s okay, or will they use it to ask for more money claiming that the system can’t allow failure?Truth tellers…
You want a stress test? How’s this… force the banks to mark all their assets to market and completely open their books to ME, the taxpayer who is giving them money! That way I can determine if they are simply covering up more debt and derivatives that they do not have the real capital to cover. I, however, don’t really need to see their books, and neither do you… we KNOW they stink to high heaven or the books would have been opened a long time ago.
Want to get to the heart of the matter? There it is. The math does not work and we must separate corporations and their money from our political system!
It's Just Time...
This is the end of pretending to be innocent:
Don Henley - The End of the Innocence: