Tuesday, April 27, 2010

Toxic Timmy and The Veep In Cheesetopia

Early this afternoon, the Treasury Secretary and the Vice President will make a stop at UW-Milwaukee to sell the President’s financial reform package. And boy, do we need reform.

In many ways, though, it’s politics as usual, with one side lined up against the other, and the last thing we need is politics as usual. Tim Geithner, the Treasury Secretary, is a highly tainted public figure. First, he’s incompetent; second, he’s apparently not very bright; and third, he’s been a “big bank” guy all his life.

Vice-President Biden is pretty much along for the ride.

The proposed reforms, though still very much in-the-making, include a mechanism for liquidating large banks/investment houses that get themselves into trouble; there’d be an entirely new bureaucracy to police lending practices from a consumer standpoint; and a plan to require those insanely risky derivative investments to be traded on open exchanges.

Most of this stuff is through the House, and the Senate is still tinkering.

Predictably, the Republicans are lined up against the plan, particularly the part that requires the investment houses to spin off their derivates trading operations. And the Republicans pretty much had their way in getting rid of that stupid 50-billion-dollar bailout fund, which I think was put in the legislation simply so the Democrats could “give” on something.

Most people’s eyes glaze over when you start talking about credit default swaps on collateralized debt obligations, but that’s the monkey wrench that brought the giant financial houses to their knees. If you believe what people like author Michael Lewis (“The Big Short”) say about it, the top echelon of executives in the big financial outfits really didn’t understand the tremendous risks their derivatives traders were taking.

In common parlance, these traders had their companies on the hook for billions and billions and billions of dollars of risk, which the top execs had no idea about. And so much of it was done “off the books” that it’s hard to get a clear picture of the staggering amounts of money involved.

Pretty much all we know for sure is that you and me, and our grandchildren’s children are on the hook for bailing them out, with no reasonable expectation right now that it won’t happen again. After the meltdown and the bailout, the big banks and investment houses simply went back to doing what they were doing, because there were no strings attached to the bailout money, and no regulations in place to stop them or even effectively monitor them.

We need better regulation and better regulators, and don’t come at me with “free market” arguments, or we’ll have to talk about “too big to fail”, and that’s a conversation you do NOT want to have if you’re opposed to more stringent regulation and more competent regulators.

And, just between you and me, it would be OK with me if Greenspan, Geithner, Bernanke, and the whole lot of them simply disappeared.

I don’t think we could possibly do worse.


  1. The confusing thing about the bailout strategy is that it seems to be working. Hizzoner Paul Soglin weighs in on that: http://bit.ly/31ef2u

    The U.S. is even making a profit on the investment. Was that ... was any of it the right thing to do? There's something not right about using the mechanisms of the freebooting bankers to right their ill-skippered ship, but it's hard to be opposed to success that works in our collective best interests.

    Think of the "It takes a thief ..." adage. Geithner, smart or not, apparently knows how to work the levers. Let's get our money back, maybe take that profit (think of it as an aggravation tax on stupidity). Then lets put a field of serious regulatory landmines around those unbounded bank brigands.

  2. Hier: it's not hard to "make a profit" if you're borrowing at 1/10th of 1% interest rate (T-bills) and lending at, say, 5%. Doesn't exactly reflect 'market,' but hey...

    Two suggestions:

    1) Bring back Glass-Steagall, separating commercial banks from investment banks, and

    2) Put CDO's and derivatives on a publicly-traded market (like NASDAQ) as was suggested (more or less) back in the Clinton days (Rubin, IIRC, squashed it.)

    More regulation? Maybe. Better regulators? definitely. However, no matter the regulator, or regulation, the politicians will always game the system.

    That's why the BigBoyBanks generally send their campaign donations to the (D) Party. Ask Chris Dodd!