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Wednesday, April 15, 2009

Any Questions?

Anyone doubting the level of arrogance and self-dealing amongst the FedGov's executive and legislative branches and their friends in the banking industry needs to read this Congressional Oversight Panel report, subtitled "Assessing Treasury's Strategy: Six Months of TARP."

Financial planner Mike Morgan had this to say on his blog:

The Warren Report II – This one could save our country.

Elizabeth Warren, Chair of the Congressional Oversight Panel, has put together a report that should be the number one topic of main stream media. This is the finest document produced to date on TARP, TALF and all of the shenanigans going on throughout the Financial Crisis. She tells is like it is, and she exposes the details of the current financial crisis that everyone else is sweeping under the rug. Ms. Warren also tells us what we need to do, based on realistic analysis of what worked and what didn’t during the Great Depression, in Sweden, in Japan and more.

Here are a few snapshots and thoughts and here is a link to [a YouTube video of] her explaining the report.

Tim the Tax Cheat in Over His Head – You can understand just how much trouble we are in when you read the paragraph below. Ms. Warren is politely noting that Tim the Tax Cheat is clueless.

On the other hand, it is possible that Treasury’s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth. The actions undertaken by Treasury, the Federal Reserve Board and the FDIC are unprecedented. But if the economic crisis is deeper than anticipated, it is possible that Treasury will need to take very different actions in order to restore financial stability.

TRANSPARENCY – One common theme we hear from Ms. Warren and the Administration is that we need transparency from the banks, financial institutions, markets and the Administration. Well, let’s explore that for a moment, because one thing lacking in this crisis is . . . transparency. And Ms. Warren documents that over and over and over and over and over and over.

What is Treasury’s Strategy? - This question was not answered in the past, and goes unanswered today. Why? Because King Henry’s strategy was:

(1) Bail out Goldman Sachs,
(2) Make sure all his friends from Goldman Sachs had plenty of money and were well placed (Bob Steel at Wachovia, Kaka Kashkari as King Henry’s lieutenant . . . and now still in charge of the TARP!!!),
(3) Make sure Goldman Sachs had favored status and AIG was pumped up with cash to funnel to Goldman Sachs, and
(4) SCREW the rest of the people in the United States.

Here is what Elizabeth Warren had to say in the report . . .

This is the fifth TARP oversight report of the Congressional Oversight Panel. In our first and second reports, we asked the question, “What is Treasury’s strategy?” In the absence of a clear answer to that question, in our third report, we looked at whether Treasury’s programs produced a clear value for the taxpayer by valuing the preferred stock that Treasury had purchased using TARP funds. In our fourth report, we looked in detail at the mortgage crisis, a key component of the financial crisis that gave rise to the TARP. Now we return to the issue of strategy as a new Administration begins to announce its intentions in detail for the TARP.

What is Treasury’s Strategy? - I’m not repeating myself, but obviously neither Tim the Tax Cheat nor King Henry felt compelled to respond to the committee. Ms. Warren makes that very clear throughout the 148 page report. Here is another quote:

The Panel has pressed Treasury for a clear statement of its strategy for stabilizing the financial system since it first posed the question in its initial oversight report in December 2008.

I REPEAT – What is Treasury’s Strategy – You can only imagine the frustration the Ms. Warren must have felt when you read this section of the report.

Despite months of requests, the Panel was unable to secure a commitment from Secretary Geithner to testify at a Panel hearing regarding Treasury’s strategy. In recent days, a date was finally set for April 21. The Panel appreciates the commitment, but it is concerned about the prolonged process.

The Panel was also quite surprised to discover it was excluded from the PPIP term sheet providing information access to GAO and SIGTARP. Thus far, Treasury has offered no explanation for why it would attempt to exclude the Panel from access to this information.

While the Panel understands the many demands on Treasury at this time, this delayed response is deeply worrisome. In his April 2 letter, Secretary Geithner promised regular meetings and briefings before major announcements. This would be a significant improvement. A productive working relationship with Treasury would provide greater transparency to Congress and the public.

What is Treasury Basing Their Plan On? – This question was asked and asked and asked and asked and asked and asked. No answers. None. Nada. Zipity Doo Daa. So Ms. Warren write, time and time and time again . . .

Since Treasury has not provided the baseline economic projections behind its
stabilization efforts, . . .

Stress Test or Self Test – I couldn’t believe the statement from Tim the Tax Cheat that all 19 of the largest banks had passed the stress test. Elizabeth Warren reveals that the banks did not necessarily pass any test. This was a self-test. Here is a statement from the Warren Report II.

“In conformity with Treasury’s assumptions, regulators will be relying extensively on the work of the incumbent financial management of the 19 firms in making these assessments.”

If you’re laughing, you should either be crying. But it gets worse. Here is how the Warren Report II sums up the Stress Tests . . .

In either case, the stress tests would not produce the desired results.

Is the Treasury Action Working? – No. I could leave it that but you wouldn’t believe me. Remember when King Henry demanded $700 billion or the world would come to and end, but if he got the $700 billion, everything would get better? Remember that? Here’s Ms. Warren’s response . . .

Worsening Metrics (Bad Signs) - Despite several measures that indicate that the government’s responses to the financial crisis relieved a panic atmosphere in October 2008, other measures indicate that there is an ongoing credit crisis despite extensive expenditures, loans, guarantees, and regulatory forbearance.

How it was done in the 1930’s – There was a lot of things in this report that the world’s most famous student of the Great Depression (Ben Bernanke) needs to read. Following is one example of how the RFC – Reconstruction Finance Corporation deal with the banks. So if Bozo Ben is the ultimate student of the Great Depression, why is he not taking note of the following? Easy answer: He’s just a student, and he’s in the back pocket of the banks.

In exchange for this government support, the RFC exercised its control of the banks by replacing senior management at some banks and forcing a change in business practices when it determined that changes were needed. The RFC also used its power to negotiate and reduce the salaries of bank managers and executives. The RFC preferred stock had a senior claim on bank earnings and common stock dividend payments were strictly limited to a specified maximum until the government investment was repaid . . .

Mark-to-Market or Mark-to-Myth – Another lesson from the Great Depression that Ben and Company are ignoring, is that we MUST mark-to-market to determine if a bank is even viable. Here is how they did it in the 1930’s . . .

It should be noted that the RFC valued banks’ assets varied over the life of the RFC. At the outset, RFC examiners evaluated assets at their fair market value, using this determination to guide them in deciding if an institution was viable, . . .

Why was the RFC Successful? – Lessons to be Learned – The Warren Report II sums it up very well. Unfortunately, Bernanke and Tim the Tax Cheat are totally ignoring all lessons they should have learned from studying the Great Depression.

Among the major reasons cited for the relative success of the RFC were that: (1) it
required banks to submit their regulatory examinations for inspection and rejected hopelessly insolvent banks; (2) the RFC was a separately capitalized institution with financial and political independence to make decisions as it deemed them necessary; and (3) restrictions on recipients of RFC assistance reduced moral hazard and ensured that banks would not take advantage of the program. Among these restrictions were the voting rights that the government gained, the influence the RFC had over personnel matters, and the seniority of RFC dividends to all other stock dividends.

Sweden and Japan – If student Ben did not learn what he should have from his studies of the Great Depression, Ms. Warren points out very clearly, that Bongo Ben is ignoring the lessons we should have also learned from Sweden in the 1990’s and Japan in the 1980’s, 1990’s and 2000’s. And the report explores the problems in Iceland, Ireland, Europe and beyond. This report ranks as one of the most detailed and footnoted document I have ever read . . . for a document that actually makes sense.

What to Do? – It seems like the panel could not agree on what to do. In fact, some on the panel felt it was not even appropriate to explore what to do. And the four less learned are being completely and totally ignored!

Options for Moving Forward
Disagreement exists among Panel members regarding the need for, and appropriateness
of, discussing potential alternative courses for Treasury to take to restore inancial stability. This section of the report is nevertheless offered to provide context to Treasury’s current efforts and to highlight the considerations involved in choosing potential alternative paths.

1. Lessons Learned
Although diverse in cause, scope, and solution, previous financial crises provide
important insights for contemporary policymakers. In particular, past experience suggests that effective solutions for banking crises often have in common certain characteristics without which a bank crisis may well persist or worsen:

• Transparency.

• Assertiveness.

• Accountability.

• Clarity.

There were discussions of each of these in the report, but enough is enough. The report is detailed and specific. The rebuttals from Sununu and Neiman, that they cloak as “Additional Views” are nothing more than partisan rhetoric. In a crisis like this, we don’t need this kind of nonsense.

I’ve just given you a few snapshots of the document. Ms. Warren professionally and politely points out just how screwed up things are, and exactly what needs to be done. Closing banks is critical, not what Tim the Tax Cheat and Sheila Baby are doing by pumping more drugs into the sick banks. Transparency is critical, but everything being done now and everything done by King Henry was cloaked in secrecy.

Sadly, the contents of this report will be buried in the Library of Congress, and Ms. Warren will disappear.

I leave you with a heading from a section of the report. You can guess what the answer is.

Time – Is it on Our Side or Not?

Tempus fugit.


Blogger jon said...

"relative success" is no longer sufficient. it's a good effort, but what is needed is not governmental effort.

what is needed is for them to walk away before they coax out the fury and violence in the masses that will deliver them to the guillotine.

the government thinks it has a problem from "right-wing extremists." hah! you want to focus on the fractional loudmouths of the 3% you go right ahead, but it's the uneducated 60-70% that are just a few meals away from murder, and they're not going to stay under government control forever.

something about whistling and graveyards.

April 15, 2009 at 4:11 AM  
Anonymous Anonymous said...

"What to Do? – It seems like the panel could not agree on what to do."

The answer is simple. Prohibit the Federal Reserve from buying any more assets--ever.

When the central bank loses its ability to expand the nation's money supply, the dollar's value will be preserved. With the dollar's value thus protected, savings and thrift will be rewarded.

Moral hazard will be reduced.

The banksters will be restrained.

This won't ever be confused with the Second Advent, but it's a wholesale improvement over the status quo.


April 15, 2009 at 4:50 PM  

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