Hundred Power » Finance Bailout

Fix the Banks!

MyHundred — Sat, 25 Apr 2009 15:15:34 +0000

OLD Rule: The big banks are too big to fail.

NEW Rule: All banks are too strong to fail.

Global bank losses hit $4.5 TRILLION. $2.7 TRILLION is from loans and assets originating in the United States. The biggest losers are the biggest banks, which the U.S. taxpayer has bailed out with direct infusions of money. The latest plan is to start giving the banks money for their bad loans. Heads they won; now it’s tails, and we lose. And, the U.S. taxpayer has backstopped the FDIC, which simply closes the smaller banks. Just this week, the FDIC closed 4 banks at a cost of $700 Million. In 4 months this year alone, the FDIC has closed 29 banks; last year, 25 banks. Who wants to see failures of this magnitude? And, who wants to keep paying for this disaster? Do you?

The American bankers have so mismanaged their business that they threaten the stability of the U.S. The most worn and tiresome phrase is to hear politicians and commentators talk about the big money center banks as being “too big to fail.” So what’s at the core of the problem? The banks just didn’t have the reserves to make it through a downturn and/or to cover the outrageous losses due to speculation with the credit default swaps. Framing the problem is to identify the solution. But, I have not seen a long-term solution proposed.

The common-sense solution is thus to require the banks to increase their reserves quarterly and yearly. Slowly perhaps, but surely. Additions to reserves should exceed dividends until the long-term reserve requirement is met. Unless a bank can get stronger, it would be imprudent and unwise for that bank to pay out any dividends at all. (And, forget any stock options, political contributions, etc.) That’s one way to maintain the advantages of a capitalist system. By the way, an alternative would be to break up the big banks so we can let them fail later as small banks. To simply expect the government to rescue banks of any size is to invite nationalization. We can take our choice.

The above is the best solution I’ve seen. The heart-breaking observation is that the political leadership hasn’t offered any solution. The silence is deafening. The politicians close their eyes and borrow more money to give to the bankers. What will it take to get the members of Congress to do their job?

Click here to contact your representatives in Washington, D.C.:
Our Elected Officials. Tell them you want a permanent fix for American banks and bankers.

– Byron

References:

New York Times, April 21, 2009.
I.M.F. Puts Bank Losses From
Global Financial Crisis at $4.1 Trillion .

CNNMoney.com, April 24, 2009.
Bad year for banks:
Failures surpass 2008.

Who Let This Disaster Happen?

MyHundred — Fri, 03 Apr 2009 19:59:33 +0000

Kevin Phillips, the gifted researcher and author, recently gave new life to an old quote from 1904. That quote is a sharp and accurate observation yet today. The former colonial secretary of Great Britain, Joseph Chamberlain, spoke to British Bankers:

“Granted that you are the clearing house of the world, ‘but’ are you entirely beyond anxiety as to the permanence of your great prosperity? . . . Banking is not the creator of our prosperity but the creation of wealth; and if the industrial energy and development which has been going on for so many years in this country were
to be hindered or relaxed, then finance and all that finance means, will follow trade to the countries which are more successful than ourselves.”

There are two very sharp concepts brought out. First, it is “production” that creates the wealth. The banks are just a service organization, like dry cleaners and casinos. The production, the foundation of the economy, is in mining, farming, manufacturing, and the transport of the products. If the core economic activities are sent abroad, the wealth goes abroad. No banks can replace it.

Second, as one economist said recently, banks and the other financial institutions are like the “circulatory system” for the economy. But, as Chamberlain points out, “banking is not the creator of our prosperity.” So, we are back to the issue of 2009. How is it that “banks” brought the United States (and many other countries) to the brink of a global depression? Who let this happen?

Click here to contact your representatives in Washington, D.C. Our Elected Officials.
Ask your representative how the Congress let this happen.

– Byron

Where’s the Financial Fire Prevention?

MyHundred — Sun, 29 Mar 2009 21:22:18 +0000

Secretary of the Treasury Geithner appeared before Congress this week. The advance scoop was that he would be proposing new regulations for the financial industry. What a great idea! You might have said, “It’s about time!” Otherwise, what will prevent another round of crises and meltdowns?

But, our hopes were dashed. Geithner simply asked for more authority to take over and bail out an even bigger number of companies. That’s not going to put a stop to the wild speculation that is tantamount to gambling by the financial industry. In the business of fire fighting, it would be far better to prevent the fire than to fight the fire. Geithner reminds me of a fire chief who wants to buy bulldozers to clean up after the buildings have burned.

Maybe Secretary Geithner has a prevention program up his sleeve. Maybe it’s too early to judge the executive branch. One can still hope for rules for higher reserve requirements, elimination of naked gambles by bankers and insurance companies, etc. On the other hand, the Congress has been around for years and years. What have they been doing? Your representatives and senators in the U.S. Congress have thousands of people working on their staffs. The Congress has no excuse whatsoever.

Click here to contact your representatives in Washington, D.C.:
Our Elected Officials. You might ask them what their excuse is.

– Byron

After The Bonus Uproar, Stay Mad!

MyHundred — Sun, 22 Mar 2009 19:43:26 +0000

This week’s hullabaloo over the AIG bonuses is an indication that the public is paying attention. However, the public may simply be going after the wrong people. In other words, chasing a red herring instead of attacking the real problem. One can only hope that the anger now turns toward the source of the real problem. The real problem people are the members of Congress. For thirty years, the Congress has gone along with the mentality of the corporate finance community. The mentality said regulations are bad. In fact, it looks as if criminal enterprise is now a part of the definition of free enterprise. Just look the other way and say, “Let the buyer beware.”

AIG, and the rest of the financial industry, sold options to their customers which weren’t covered. It’s like selling insurance and hoping that claims wouldn’t come in. Why? Because AIG and the rest didn’t have the money to pay off. And Congress looked the other way.

Albert Einstein told us, “Intellectuals solve problems; geniuses prevent them.” The good news is that Congress doesn’t have to be a genius, nor even very smart, to put back all the financial rules of the New Deal. Most of the legislation was written 75 years ago.

The “financial crisis” started last year. Have you seen one effort by Congress to put the honest controls back in the system? Have you heard of one piece of legislation? It seems like we’ve seen lots
of finger-pointing and name-calling. And speeches that never get to the heart of the matter. The solutions are so simple. What’s the problem? Is it the system itself that’s the problem?

Here’s what one wise man observed as the problem with Congress. Mark Twain boasted,
“I think I can say, and say with pride, that we have some legislatures that bring higher prices than any in the world.”

Click here to contact your representatives in Washington, D.C.:
Our Elected Officials. Tell them you want a regulatory system you can believe in.

– Byron

A Samurai Congress

MyHundred — Tue, 17 Mar 2009 12:56:51 +0000

Did you hear what Senator Charles Grassley said
regarding the latest AIG bonuses? This is priceless:

“The first thing that would make me feel a little bit better towards them if they’d follow the Japanese model and come before the American people and take that deep bow and say I’m sorry, and then either do one of two things — resign, or go commit suicide.”

He may have meant that literally or just figuratively. But, Senator Grassley is on to something. That might apply to the Congress, which brought us all the deregulation. Ultimately, the House and the Senate brought about the meltdown of the financial system. It was done by undoing the old regulations and choosing not to control new practices. Warren Buffett said that the new highly complex financial instruments are time bombs and “financial weapons of mass destruction” that could harm not only their buyers and sellers, but the whole economic system. And he is certainly right. The ultimate price of a trillion dollars (and still counting) is being paid by each and every American.

Look first in the mirror, Sen. Grassley. Then, address your fellow politicians in the Senate and the House. Here’s the message that’s appropriate:

“Resign, or go commit suicide.”

Click here to contact your representatives in Washington, D.C.:
Our Elected Officials.
Send them YOUR message.

– Byron

The Bailout Congress

MyHundred — Mon, 12 Jan 2009 21:10:32 +0000

In November, Bill Maher had a great line regarding the “financial fiasco”:

“New Rule: Hank Paulson must drop the $700 billion in bailout money from a plane and let everyone scramble for it on the ground. Sure, it’ll be chaos, but at least this way we have a chance of getting our money back.”

Yes, it’s a funny line. But, the satire does not need to stop with the
Paulson bailout.

Try this one. Since the 1970’s, every candidate for president, for the
House, and for the Senate has promised to deliver “energy independence”. That is, to reduce American dependence on foreign oil.

One part of the program was to establish some standard for gas mileage for a car manufacturer to meet. It was a standard for their “fleet” so the
company could still offer a range of cars. It sounds like a way to reduce
consumption of gas. However, the Congress then created an exemption for pick-ups. Later we find that the definition included the most gas-guzzling SUVs. Yes, a SUV is a “pick-up,” said the Congress.

And, then the Congress outdid themselves using the tax code. They gave an incentive for businesses and self-employed people to purchase gas-guzzlers. Thus, folks could take a 100% deduction of the costs immediately. For example, anyone purchasing a $75,000 SUV wrote off $75,000. In the highest tax bracket, that meant the federal government gave the owner $25,000 plus. And, the government borrowed the money from China to fund the giveaway for Americans to buy more gas-guzzlers.

Next, how about that foreign oil? Well, the Congress approves of going to war in Iraq to protect the foreign oil supply. World’s only superpower, you know. So, the federal government borrows more money from China to pay for that war. (Are we seeing a pattern here?)

And, guess what? The price of gas soared above $4 per gallon. Now few people want to buy such vehicles. Thus, the auto companies are losing money because they staked their success on gas-guzzling big-ticket vehicles. So what happens now? Well, the Congress says it has to bail out the auto companies. And, of course, to do that they have to borrow more money from China.

Maybe Bill Maher is actually on to something. Maybe throwing money from airplanes, or maybe from skyscrapers, should be discussed in Congress. All things considered, it might have cost America less.

In 1928, on his radio program, Will Rogers observed: “No nation in the history of the world was ever sitting so pretty. If we want anything, all we have to do is go and buy it on credit. So that leaves us without any economic problems whatever, except some day to have to pay for them,” he told America. “But we are certainly not thinking about that this early.” One year later, the stock market crashed big-time. Oh, yes, it rose to new records before finally settling to a new low in 1932. Stocks had lost 90% of their value.

Click here to contact your representatives in Washington, D.C.:

Our Elected Officials. Tell them you want a bailout you can believe in.

– Byron

References:

“Real Time with Bill Maher,” HBO, November 14, 2008.
New Rules.

Citigroup Welfare

MyHundred — Tue, 25 Nov 2008 16:00:40 +0000

Citigroup is again taking billions of your money. This week’s new bailout
of Citigroup is $20 billion. The company had already received $25 billion. That’s now $45 BILLION to “help” Citigroup.

Citigroup’s website says: “Citi is today’s pre-eminent financial services
company, with some 200 million customer accounts in more than 100
countries.” Think about it. Citigroup owns banks and operations in 100
foreign countries. If Citigroup needs money, let Citigroup start selling one company in each of those 100 countries. That’s the first way that a global giant can raise money.

Second, a year ago the annual report said Citigroup raised $30 billion in
short order as long-term investors provided new financing. At some price, capital is available to Citigroup even today. Stocks and bond sales could raise the money.

So what’s going on? Why is the U.S. Congress spending YOUR money to rush to “save” this bank? Why wouldn’t Secretary Paulson simply tell Citigroup that there is no bailout until Citigroup takes one of the two steps above. To repeat: 1) Sell valuable assets, and/or 2) issue stocks and bonds at the market price.

You might object that “it’s more complicated” or that “there’s an emergency.” However, every time a share of Citigroup is sold on the
Exchange, that means there is a buyer. That is true. You just can’t
have a seller without a buyer, right?

James Surowiecki in the New Yorker discusses the current stock price
of Citigroup. He just wrote, “In other words, at the moment, you could buy all of Citigroup for only a little more than what it clears in free cash
every year. . . . And if I’m able to buy the whole company for two times
free cash, does it really matter if I have to write down the value of some of its assets, since I’m essentially getting them for free.” I say
that the situation is such that Treasury Secretary Paulson just might
want to buy all of Citigroup rather than handing out corporate welfare.

That’s how nutty this bailout has become. Absolutely NO discussion
is occurring that says the capital marketplace of capitalism can function.
Like Citigroup selling its companies, GM can sell Chevrolet. Ford can
sell Mercury. And that’s the way capitalism works.

References:

The New Yorker, November 21, 2008:

The Citigroup Perplex by James Surowiecki.

Keynes: Save to Spend

MyHundred — Mon, 24 Nov 2008 15:16:17 +0000

When the spigot of bailout money opens, few in Congress point where this money is coming from. Everyone knows it’s borrowed. However, virtually no one whomsoever brings up the subject of paying off the debt they’re creating.

The famous economist John Maynard Keynes proposed a scheme whereby government would “stimulate” the economy with deficit spending in bad times. Such money would have to come from borrowing money or tapping rainy-day reserves. His counter-balance is to raise taxes in the good times to pay off the government loans and/or rebuild the rainy-day fund. When the government wants to spend money, the members of Congress all become Keynesians. BUT . . . the Keynes theory of raising taxes to pay off the debt has always been totally and completely ignored.

The total U.S. federal debt has passed the $10 trillion mark. That’s
$33,000 per resident. Allocated just to the people who work, that’s closer to $60,000 per worker.

The latest “stimulus” proposal is to give billions and billions to General Motors. Speaker Pelosi said GM would have to show what it would do with that money. She said, “Until they show us a plan, we can’t show them the money.”

To Speaker of the House Pelosi, and all the rest of the members of
Congress, I say, “Show the American people the plan to borrow that money today and pay off the loan in the future.”

Don’t Ask. Don’t Tell.

MyHundred — Sun, 09 Nov 2008 21:40:12 +0000

Congress put up about $250 Billion in the first round of bailout money for the banks and Wall Street. The purpose is to “re-capitalize” these institutions. The money was supposed to be added to reserves, inspire confidence in bank depositors, and open the spigots for normal commercial lending to resume. The furor about the “bailout” is fresh in our minds. Well, well. Now we get another story.

The Guardian in the United Kingdom recently reported how a boatload of bailout money can be spent. The American banks have plans to take $70 Billion and hand it out as bonuses. This money belongs to the American taxpayer. That amount of money is $1 Million per person for 70,000 people. Or, it would be $100,000 each for 700,000 people. Either way, would you like to receive such a bonus? I would.

In Germany, banks accepting funds from their government agreed to eliminate bonuses and dividends. If the purpose of a “bailout” is to build capital, then it makes no sense to receive money from the government at the front door while shoveling it out the back door.

But . . . sense has been too much to ask. The Congress held no hearings and asked no questions. Treasury Secretary Paulson is acting
like a czar rather than a public servant entrusted with your money. They didn’t ask, and Paulson didn’t tell. When will the madness end? Enough said.

References:

U.K. Guardian, October 21, 2008:
Call for inquiry into Wall Street bank bonuses.

The Fall of Greenspan

MyHundred — Sun, 26 Oct 2008 16:13:26 +0000


      

       

       

The Greenspan Tailspin

       



       

       October 26, 2008
       
       
       



       

Alan Greenspan actually communicated reasonably clearly this week.

This is news itself. But, what he said was his judgment about

regulating the new-fangled financial instruments was wrong. Greenspan

opposed the regulation, and that ideology carried the day some years

ago. Fair, transparent, standardized, liquid markets and exchanges had

been created for futures contracts, stock options, index options,

warrants, and every type of esoteric vehicle in the 20th century.

So, even though something like a Credit Default Swap (CDS) is

an "institutional" vehicle, it needed some rules. Otherwise, it

was subject to abuse.

Fire insurance sounds pretty standard and even dull. But, it's pretty dicey if your insurance company doesn't have the reserves to pay the claims. All at once, it too can look like a Ponzi Scheme. Greenspan said he had expected the "institutional" ( read sophisticated ) managers to protect their respective businesses and stockholders. So, he admitted this week he was wrong. Way too late, Greenspin.


Nick Anderson may have the best editorial cartoon shot at Greenspan.  Click here to take a look.

And, other cartoonists are also mocking Greenspan. 

Click here to find the latest.

Greenspan is getting his just desserts. But have you noticed

that he's also being made the scapegoat for the whole financial

crisis? Greenspan was not a dictator who is solely to blame.

Where was the entire U.S. Congress? Where were the grown-ups

in the Executive Branch? What does it take to get the political

class to do its job?
One option (just one of many) is to vote for "The None-of-the-Above Party." But, you've probably already come up with your own conclusions. Just vote.