. . . because much of the content relates both to Washington, D.C., and "outside the beltway" -- the heartland, specifically Iowa -- and because after going from Iowa to Washington via Texas and California I subsequently returned, From DC 2 Iowa.
Things may not be quite as bad as the Onion News Network portrays, but its report sure fingers the problem -- as we'll explore in a moment, below.
Let's see now, why was it we were told we had to "right now, no questions asked or answered, trust us" give billions of taxpayer dollars to some of America's largest banks and their wealthy executives? Oh, yeah, the suggestion was pretty heavy that ordinary taxpayers weren't sophisticated enough to really understand, which is why we had to leave the solutions to the guys who created the problem -- guys who tend to rotate back and forth between Wall Street and the Treasury Department.
But for those of us who insisted on more explanation, we were told that this gift was necessary in order to get the banks to abandon their blackmail threat ("give us $700 billion right now or we won't loan money any more") and start loaning money again, restructuring mortgages to enable those who would otherwise become homeless to stay in their homes, creation of more jobs, and the increased buying consumers would do once credit became available. And the point was always stressed that the goal was not to help banks on Wall Street but the consumers on Main Street.
So it's been a few months. What are the results?
Have the banks increased their loan operations? Well, no, not really; in fact they've cut back further, drying up more credit, than they did before they got our money. Meanwhile, they've helped themselves to another pot of gold that has received very little attention from the media. [Endnote 1.]
So how about the foreclosures, are there fewer? Well, no, not actually; there have been 24% more foreclosures this quarter than a year ago. And what about President Obama's plan to forestall foreclosures? The banks have decided that it was a program only designed to keep people in their homes over the winter, when their adverse publicity is the worst as a result of evicting families into the snow. Now that spring is here they're back to evicting people big time. [Endnote 2.]
At least I hope we have had a dip in the number of those who are still receiving unemployment. Hope again; it's more like a cyst than a bubble. After the bank bailouts, what are called "continuous jobless claims" have now escalated to what are the highest levels in American recorded history. [Endnote 3.]
But then I guess at least consumer purchasing must have turned around, right? Wrong. Consumer purchasing declined even further from February to March. [Endnote 4.]
Golly, I'm beginning to feel sorry for those big banks; these must be really tough times for them. Not quite; they're having some very profitable quarters. [Endnote 5.]
Kind of looks like "three strikes you're out," huh? Wrong again; it looks like the bankers will be coming back to the Treasury and Congress asking for an extension on what they consider a very successful "bailout billions for bankers" program. And so long as they continue to be willing to give back in campaign contributions a small share of what Congress gives them, as a token of their appreciation (in what the two major parties have called their "give a million, get a billion" outreach programs), it looks like there may be even more billions coming their way. [Endnote 6.]
To further sweeten the kitty, the Onion News Network is reporting, the Treasury is now recalling all currency still possessed by American citizens:
1. "Lending by the nation's largest banks fell 6 percent in February from the previous month, continuing a downward trend that began in October with the financial crisis, according to data published yesterday by the Treasury Department. The 21 banks in the survey have received more than $211 billion in federal funding to support new lending with the aim of stimulating the economy. The money has not accomplished its purpose. The banks reported a 24 percent decline in the dollar value of business lending . . .." Binyamin Appelbaum, "Lending by Bailout Recipients Falls Again,"Washington Post, April 16, 2009.
"Demand for commercial and industrial loans was weak, and there were several reports that business borrowers were postponing capital expenditures." "Banking and Finance," U.S. Federal Reserve April Beige Book Summary, Bloomberg, April 15, 2009. ["The nation's major banks, concerned about their own deteriorating finances, are making fewer loans to corporations. By cutting back on loans that companies use to buy other concerns, build factories and develop products, the lending slowdown weakens the national economy and could precipitate or lengthen a recession that many economists say has already begun. Michael Quint, "Banks Cut Business Lending, Hurting Weakened Economy,"New York Times, October 16, 2008.]
"Goldman Sachs . . . is quietly holding on to other forms of public support that come with virtually no strings attached. Banks have been benefiting from an indirect subsidy adopted by the federal government at the height of the financial crisis last fall that allows them to issue their debt cheaply with the backing of the Federal Deposit Insurance Corporation. . . . [G]iven the huge amounts of debt issued by Goldman, JPMorgan Chase and Morgan Stanley alone, any major collapse could breach the F.D.I.C.’s reserves. The agency has asked Congress for authority to borrow more money from the Treasury in case of an emergency." Louise Story, "U.S. Program Lends a Hand to Banks, Quietly,"New York Times, April 14, 2009.
2. "[F]oreclosures surged in the first quarter, according to reports released on Thursday. . . . James J. Saccacio, chief executive of RealtyTrac, said . . . that foreclosures would probably increase over the next months as temporary halts to foreclosures expired at banks . . .." Jack Healy, "No End Yet for Downturn in Housing, New Data Suggest,"New York Times, April 16, 2009; "U.S. foreclosure filings rose to a record in the first quarter as . . . temporary programs to delay action on defaults came to an end." Dan Levy, "Foreclosure Filings in U.S. Climbed to Record in First Quarter,"Bloomberg, April 16, 2009.
3. "Continuing jobless claims rose to 6 million for the week ending April 4, an increase of more than 100 percent from the same time last year." Ibid.; "The total number of people remaining on the jobless benefit rolls . . . [is now] topping 6 million for the first time . That's the highest on records dating from 1967." Christopher S. Rugaber, "Jobless Claims Top 6M; Housing Starts Plummet," Associated Press Mobile News Network [an iPhone app], April 16, 2009.
4. It turns out that what consumers need to increase their spending is more cash, not more credit! "The Rockefeller Institute of Government recently released a report . . . indicating that the [states'] sales tax decline in late 2008 was the worst in 50 years . . . because sales to consumers have fallen — a spending decline that has been unusually steep by historical standards." Catherine Rampell, "Comparing This Recession to Previous Ones: Retail Sales,"New York Times, April 16, 2009;
"Geithner believes the only way to rescue the economy is to get the big banks to lend money again. But he’s dead wrong. Most consumers cannot and do not want to borrow lots more money. They’re still carrying too much debt as it is. Even if they refinance their homes – courtesy of the Fed flooding the market with so much money mortgage rates are dropping – consumers are still not going to borrow more. And until there’s enough demand in the system, businesses aren’t going to borrow much more to invest in new plant or machinery, either." Robert Reich, "We Need More Stimulus, Not More Bailout," April 14, 2009.
5. "J.P. Morgan Chase this morning reported first-quarter earnings of $2.1 billion, as it profited from the availability of cheap funding from depositors and the federal government. The results offered the latest indication that some banks are beginning to overcome the weight of massive losses on their outstanding loans, following reports of first-quarter profits from Goldman Sachs and Wells Fargo." Binyamin Appelbaum, "J.P. Morgan Chase Reports Strong 1Q Earnings,"Washington Post, April 16, 2009.
6. "With only $110 billion remaining in the TARP bailout fund, all signs are that Tim Geithner is preparing to return to Congress seeking more bailout money. . . . Congress won’t be happy but in the end it will cough up another 300 to 500 billion." Robert Reich, "We Need More Stimulus, Not More Bailout," April 14, 2009. ______________
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
How Could We Have Seen Economic Disaster Coming? Let Me Count the Ways (Brought to you by FromDC2Iowa.blogspot.com*)
Curious as to how we got into this financial mess -- or, otherwise put, just how many signs there were that it was coming, signs that were ignored by our public officials and the MBA-educated CEOs who have left their crime scenes with millions in tow?
There is much to admire and be thankful for in our soon-to-be President Obama, but a willingness to prosecute -- even to investigate, and document -- the serious, even unconstitutional, wrongdoing of others is not among his virtues.
I haven't been enthusiastic about the prospect of bringing impeachment proceedings against President Bush -- though I think they would be justified. However, I do think at a minimum we need an itemization, and documentation, by some official body (presumably a congressional committee) of the Bush administration's mistakes, from the unwise to the unconstitutional, if we are to avoid leaving the impression that the American people and their congress find the Bushies' decisions and behavior over the past 8 years to have been either desirable or acceptable.
President-elect Obama seems to be of a different view, whether the offenses were those in the Bush administration or the financial community.
Last Sunday (January 11) he had this to say with regard to the former:
STEPHANOPOULOS: The most popular question on your own website is related to this. On change.gov it comes from Bob Fertik of New York City and he asks, "Will you appoint a special prosecutor ideally Patrick Fitzgerald to independently investigate the greatest crimes of the Bush administration, including torture and warrantless wiretapping."
OBAMA: We're still evaluating how we're going to approach the whole issue of interrogations, detentions, and so forth. And obviously we're going to be looking at past practices and I don't believe that anybody is above the law. On the other hand I also have a belief that we need to look forward as opposed to looking backwards. . . .
Three days earlier, in his George Mason University stimulus package address, he took a similar approach to financial community abuses with his reluctance to "point fingers": "[E]very day we wait or point fingers or drag our feet, more Americans will lose their jobs, more families will lose their savings, more dreams will be deferred and denied, and our nation will sink deeper into a crisis that at some point we may not be able to reverse." CQ Transcripts Wire, "Obama Delivers Remarks On Economy,"Washington Post, January 8, 2009.
As Paul Krugman has observed:
I’m sorry, but if we don’t have an inquest into what happened during the Bush years — and nearly everyone has taken Mr. Obama’s remarks to mean that we won’t — this means that those who hold power are indeed above the law because they don’t face any consequences if they abuse their power. Let’s be clear what we’re talking about here. It’s not just torture and illegal wiretapping . . ..
As I often point out to my law students and others, there are really two legal systems (in addition to the two represented by one for the rich and one for the poor). There is the one that relates to those law violations of which most Americans are aware: you can't steal stuff from other people's houses, drive faster than the speed limit, and so forth. But in fact some of the most severe penalties are handed out for violations of the second legal system, the rules we impose regarding the operation of the first legal system: not showing up for a court date, lying to officials or on the witness stand (perjury).
Remember Martha Stewart? Her "crime" was not so much that she sold stock on the basis of "insider" information as that she lied about having done so. She said that the stock was sold by her broker at $60 a share because of a prior stop-loss order that it be sold if it dropped to that price.
So I am not about to come to Ms. Stewart's defense.
Nonetheless, I think the financial dimensions of what she did, and the penalty she received, can fairly be compared with those of bankers and Wall Street traders during the last couple of years.
[S]he and her former stockbroker, Mr. Bacanovic, were convicted of conspiring to hide the reasons behind her ImClone trade, which netted her about $227,000 [the difference between what she paid for the stock and what she sold it for]. . . . "To believe that I would sell, to avoid a loss of less than $45,000 [how much less she would have received had she sold it later], and thus jeopardize my life, my career and the well-being of hundreds of others, my cherished colleagues and partners, is very, very wrong" [she said at one point].
So what was her punishment for this $45,000 saving -- five months in prison (plus an additional five months of home confinement)!
Can you imagine her getting off scot free if she'd said to the judge, following Obama's logic, "Your honor, we need to look forward as opposed to looking backwards"?
Why is it appropriate for the law to be "looking backwards" at Stewart's $45,000 "crime" (presumably impacting only indirectly, and minimally, other investors), but that it should only "look forward" when it comes to a near-$10 trillion theft of taxpayers' money (as authorized by Congress, Bush, Paulson, Bernanke, and soon to be recommended by Obama)?
A President Obama need not be personally involved in the potential prosecution of former Bush administration officials or bankers who have violated the constitution or the law; that's what the Department of Justice and his new Attorney General are for. But for the former law professor that he is to say that "I don't believe that anybody is above the law" while simultaneously refusing to engage in "looking backward" at those who have behaved as if they were, is at best a little disingenuous.
Can officials and CEOs fairly claim they didn't see this tsunami of economic disaster coming? I don't think so.
Here then are but the first three pages -- 2003 through June 2007 -- of Jason Cox's 87-page itemization of all the events and reasons why their pleas of ignorance ring hollow.
· June 2003: o Greenspan lowers Fed’s key rate to 1%, the lowest in 45 years http://www.bloomberg.com/apps/news?pid=20601087&sid=aclMlgBb3taQ&refer=home
· 2006: o Lenders make $640 billion in subprime loans o 20% of all mortgage lending was subprime http://money.cnn.com/2007/04/02/news/companies/new_century_bankruptcy/
· May 5, 2006: o In possibly the first casualty of the looming subprime crisis, Kirkland, Washington based Merit Financial Inc. files for bankruptcy and closes its doors, firing all but 80 of its 410 employees, kept to wind down the business. o Chief financial officer, Ryan Kidd, said that Merit’s marketplace had declined about 40% and sales were not bringing in enough revenue to support the overhead of running the company. http://seattlepi.nwsource.com/business/269154_merit05.html
· August 26, 2006: o Defaults on subprime mortgages start to occur much earlier in the mortgage process. o Investors and analysts believe this trend could be the result of lax underwriting quality or a sign of a weakening mortgage credit market. http://www.facorelogic.com/uploadedFiles/Newsroom/RES_in_the_News/Subprime_Mortgage_Lenders_Seeing_Early_Payment_Defaults.pdf
· January 3, 2007: o Ownit Mortgage Solutions Inc. files for Chapter 11. o Owed Merrill Lynch around $93 million when filing. http://www.californiabankruptcylawyerblog.com/2007/01/californiabased_ownit_mortgage.html
· February 5, 2007: o Mortgage Lenders Network USA Inc. files for Chapter 11. o 15th largest subprime lender with $3.3 billion in loans funded in third quarter 2006. http://www.boston.com/news/local/connecticut/articles/2007/02/05/mortgage_lenders_network_files_for_ch_11_bankruptcy_protection/
· February 7, 2007: o HSBC, a large London based bank, issues a warning that an earlier statement about its Mortgage Services operations will be much worse than current market estimates. o HSBS blames this drop on the increased delinquencies of US subprime mortgages and the inability to refinance because of falling equity prices. o The release said that the aggregate loan impairment charges and credit risk provisions could be 20% higher than the earlier statement. http://www.hsbc.com/1/2/newsroom/news/news-archive-2007/hsbc-trading-update-us-mortgage-services
· February 10, 2007: o The Group of Seven Finance Ministers meet in Essen, Germany to discuss worldwide financial problems. o One of the main concerns is the lack of regulation of hedge funds. Germany says this could be a source of systematic risk for the financial system where the US believed market discipline is the best way to address the issue. o Henry Paulson noted that the US residential housing market had been cooling over the last year but appears to have stabilized. http://www.ft.com/cms/s/0/3db4a4e4-b650-11db-9eea-0000779e2340.html http://www.ustreas.gov/press/releases/hp255.htm
· February 13, 2007: o ResMae Mortgage Corp. files for Chapter 11. o Credit Suisse Group buys $19.1 million in assets in auction. o ResMae made $7.7 billion in subprime loans in 2006 making it 26th in subprime lending. http://www.bloomberg.com/apps/news?pid=20601087&sid=arsKNQcbPcxc&refer=home
· March 2007: o New Century Financial announces it will stop making loans and needs emergency financing to survive. o Stock price goes from $15 at the beginning of March to $3.21 when announcement is made. http://www.nytimes.com/2007/03/11/business/11mortgage.html?pagewanted=3&_r=1
· March 20, 2007: o People’s Choice Home Loan files for Chapter 11. http://www.bloomberg.com/apps/news?pid=20601087&sid=atkiRNcdlZ8M&refer=home
· April 3, 2007: o New Century Financial files for Chapter 11. o Cuts 54% of its workforce or 3,200 jobs o Largest subprime lender in US. o Delisted from the NYSE o Defaults on $8.4 billion in loan repayments o New Century made $51.6 billion in subprime loans in 2006 making it 2nd in subprime lending http://money.cnn.com/2007/04/02/news/companies/new_century_bankruptcy/
· April 12, 2007: o SouthStar Funding LLC files for Chapter 7. o Another subprime lender http://www.reuters.com/article/gc06/idUSN1236927220070412
· June 7, 2007: o In a letter to investors, Bear Stearns suspends redemption rights for a hedge fund heavily invested in the subprime debt market because of liquidity problems. o The fund had lost 23% of its value since January 2007 including almost 19% in April alone. http://www.businessweek.com/bwdaily/dnflash/content/jun2007/db20070612_748264.htm
· June 22, 2007: o Bear Stearns agrees to a plan to loan $3.2 billion to one of its hedge funds. o The lack of liquidity at the hedge fund is blamed on the bad bets that were placed on the US subprime mortgage market. http://www.ft.com/cms/s/0/d7936764-f1d5-11dc-9b45-0000779fd2ac.html
· June 27, 2007: o SEC Chairman, Christopher Cox, testifies to Congress that the SEC has opened 12 enforcement investigations into collateralized debt obligation (CDO) practices. o This was in response to questions from Congress about the transparency of CDOs http://www.reuters.com/article/bondsNews/idUSWAT00779720070626 http://www1.cchwallstreet.com/ws-portal/content/news/container.jsp?fn=07-02-07
Of course, if this history merely moves you to sympathy for those who've made off with your share of the taxpayers' money, you can always "Sponsor An Executive":
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* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself.
