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From The Ed Schultz Show Nov. 16, 2009. Byron Dorgan ten years after the repeal of The Glass-Steagall Act--let's revisit it. Dorgan talked about splitting up these big investment banks and said too big to fail is too big to exist. Amen brother.

Krugman points out (again) that the administration should have nationalized troubled banks. They didn't, and the under-regulated, undisciplined banking industry is hurting everyone else as a result:

Ask the people at Goldman, and they’ll tell you that it’s nobody’s business but their own how much they earn. But as one critic recently put it: “There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.” Indeed: Goldman has made a lot of money in its trading operations, but it was only able to stay in that game thanks to policies that put vast amounts of public money at risk, from the bailout of A.I.G. to the guarantees extended to many of Goldman’s bonds.

So who was this thundering bank critic? None other than Lawrence Summers, the Obama administration’s chief economist — and one of the architects of the administration’s bank policy, which up until now has been to go easy on financial institutions and hope that they mend themselves.

Why the change in tone? Administration officials are furious at the way the financial industry, just months after receiving a gigantic taxpayer bailout, is lobbying fiercely against serious reform. But you have to wonder what they expected to happen. They followed a softly, softly policy, providing aid with few strings, back when all of Wall Street was on the ropes; this left them with very little leverage over firms like Goldman that are now, once again, making a lot of money.

But there’s an even bigger problem: while the wheeler-dealer side of the financial industry, a k a trading operations, is highly profitable again, the part of banking that really matters — lending, which fuels investment and job creation — is not. Key banks remain financially weak, and their weakness is hurting the economy as a whole.

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It was a real Wingnut-O-Rama on Fox yesterday when Rep. Michelle Bachmann of Minnesota went on Glenn Beck's show and expounded at length about ACORN's supposed involvement in the Community Reinvestment Act.

What they're trying to do, of course, is taint any kind of minority-advancement program by tying ACORN around its neck. Mind you, the CRA has been around since 1977, since well before ACORN's rise. But nevermind -- they just want to scare white people with false "facts" about minority advancement efforts.

For instance, Beck reiterates what is now right-wing legend:

Beck: You may remember -- or not -- the CRA, the Community Reinvestment Act, is the thing that makes banks makes banks lend money to people they don't want to loan money to because they have very low income and they're very likely to go under. It's often cited as one of the chief causes of the subprime mortgage meltdown.

This is, of course, a flat-out lie. In fact, as the Wikipedia entry explains, the CRA only forces banks to lend to people they don't want to because they're the wrong race:

Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining. The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation.

... The law, however, emphasizes that an institution's CRA activities should be undertaken in a safe and sound manner, and does not require institutions to make high-risk loans that may bring losses to the institution. An institution's CRA compliance record is taken into account by the banking regulatory agencies when the institution seeks to expand through merger, acquisition or branching. The law does not mandate any other penalties for non-compliance with the CRA.

Bachmann repeats Beck's lie and expands on it:

Bachmann: Well, it's stunning, Glenn. Just as you said, the Community Reinvestment Act is a creation of the federal government forcing private banks to make home mortgages to people who are very poor credit risks. No banks wants to do that. So the federal government in effect threatens banks and says, we're going to close down your interstate bank or we won't let you expand unless you make these bad loans to people or make loans that are unlikely to be repaid. Well, why would a bank want to do that?

Bachmann is outraged, outraged we tell you, that banks have been able to partner with ACORN in making loans to minority families (ACORN plays the role of guarantor, which actually means the loans aren't high-risk). But as Mary Kane at the Windy notes, the entire objection rests entirely on the grounds that ACORN is supposedly a proven evil and corrupt organization -- which has hardly, in fact, been proven. Unless by "evil" you mean "highly effective at getting minority voters to the polls." Which is clearly the case for Bachmann and the Turnip.

Moreover, the claim that the CRA caused the subprime meltdown is pure right-wing garbage. As FDIC chairman Sheila Bair explained:

Point of fact: Only about one-in-four higher-priced first mortgage loans were made by CRA-covered banks during the hey-day years of subprime mortgage lending (2004-2006). The rest were made by private independent mortgage companies and large bank affiliates not covered by CRA rules.

You've heard the line of attack: The government told banks they had to make loans to people who were bad credit risks, and who could not afford to repay, just to prove that they were making loans to low- and moderate-income people.

Let me ask you: where in the CRA does it say: make loans to people who can't afford to repay? No-where! And the fact is, the lending practices that are causing problems today were driven by a desire for market share and revenue growth ... pure and simple.

And as Aaron Pressman at BusinessWeek pointed out, the independent mortgage companies who were the chief offenders in the subprime meltdown were in fact never subject to the CRA.

University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations.

Well, facts and reality have never made much of an impression on the Planet Wingnuttia domiciles of Bachmann and Beck. But isn't it funny how they focus so much energy on attacking programs that benefit minorities? Hmmmmmm.

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From Bill Moyers Journal, Simon Johnson paints a bleak picture of what's ahead for us due to Washington's unwillingness to regulate the financial industry and Wall Street.

BILL MOYERS: You asked on your blog, just this week, a question I want to put to you now, and to both of you. You asked, 'Does this crisis reflect something about the disproportionate influence of a few incompetent investment bankers or a deeper breakdown of capitalism?'' What's your answer to your own question?

SIMON JOHNSON: Well, definitely, this disproportionate influence of some fairly incompetent bankers, that's for sure. That's what we're seeing today. That's what we've seen over the past few months. I think on the issue on the issue of capitalism, we have to take this very seriously. To me, at least, the financial part of our capitalism is very seriously broken.

They persuaded us to allow them to take incredible risks. And then they pushed all the downside, all those losses onto us, the taxpayer, at the same time as really hammering hard all the people who were duped, essentially, into taking out loans. People lost their houses. It's an absolute tragedy. This combination cannot go on. And yet, the opportunity for real reform has already passed.

And there is not going to be not only is there not going to be change, but I'll go further. I'll say it's going to be worse, what comes out of this, in terms of the financial system, its power, and what it can get away with.

BILL MOYERS: Why?

SIMON JOHNSON: That's the.

BILL MOYERS: Why is it going to how is it going to be worse?

SIMON JOHNSON: Well, there's four we used to have a dozen or so substantial big banks, now we're down to four. Now we're down to four big banks that have a lot more market power and a lot more political power. They make the campaign contributions. They shape agendas in ways that are that are really quite scary.

If you look, for example, at derivatives. And the debate on whether or not derivatives should be regulated in a sensible manner. And at this point, actually, the Obama Administration has is leaning in a better direction. But the big financial players are absolutely against any kind of sensible regulation. And I think they're going to win.

Oops, just kidding! Just think, if they'd actually admitted the banks were in deep trouble, and that their assets weren't worth a dime, the crisis might have bottomed out a lot sooner - and the banks wouldn't have been able to use TARP funds to buy up their competitors!

Senior U.S. officials deliberately misled the American people about the health of banks receiving huge government cash infusions last year, according to a report released today from the Treasury Department TARP watchdog.

The officials believed they were telling noble lies. The idea was that confidence needed to be restored and panic stemmed, even if this meant misleading the public about the actual health of our financial institutions.

Of course, this backfired. The government and the bailout lost public credibility when the financial crisis deepened, according to TARP watchdog Neil Barofsky's report.

Worse, the lies may have made the crisis worse by creating false expectations that the bailed out banks would be able to increase lending. Businesses and individuals planning to borrow would have discovered that their projects were impossible and their savings inadequate as banking lending continued to fall.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke that the $125 billion injection into nine banks in October 2008 was a program for "healthy" institutions. But privately senior officials believed several of those firms were less than healthy. Hank Paulson himself believed one of those institutions might fail.

"By stating that healthy' institutions would be able to increase overall lending, Treasury may have created unrealistic expectations about the institutions' condition and their ability to increase lending," the report said.

Barney Frank is weakening the administration's proposed regulation of predatory lending because, well, the conservative Blue Dogs won't go along with the original version. The industry, of course, is taking that as encouragement, and they're pushing for an amendment that would neuter state consumer protection laws:

He would also drop language requiring providers to adhere to a “reasonableness” standard in offering products; in other words, financial institutions would have been required to asses whether there products were clearly understandable to consumers. That language was seen as too vague and would leave providers open to legal challenges.

The Administration is willing to go along. In an appearance Sept. 23 before Frank’s committee, Treasury Secretary Timothy Geithner acknowledged some of the criticism of the Administration’s proposals and called Frank’s proposed changes, “a pragmatic helpful way to make sure you have the choice for protection.”

“There are lots of different ways to make sure that you don’t create too much unbridled authority that would be damaging to what’s an important part of our financial system,” Geithner said, according to the Associated Press.

Frank is also seeking to clarify just who would be regulated by the new agency, to address complaints by the US Chamber of Commerce that every small business that provides credit to its customers, or the service providers such as CPAs or advertisers who work for them, would be regulated by the new agency. Administration sources from economics chief Larry Summers on down have dismissed those criticisms as nothing more than “scare tactics” but they have nonetheless been effective. In an effort to eliminate that confusion and take it off the table as an issue, Frank will propose language that clarifies that many such businesses will not be included in the new agency’s mandate. Only bona fide providers of consumer finance offerings will be included.

In proposing the changes, Frank is “bowing to political reality” says Howard Glaser, a former top lobbyist for the Mortgage Bankers Association who now runs his own firm. In a note to clients, he points out that the Administration’s proposal was running into trouble with conservative Blue Dog Democrats.

They appear to have raised many of the concerns that have been voiced by the financial services industry and its allies at the US Chamber of Commerce, who have been lobbying heavily against the plan for the last couple of months. They argue that the proposed agency would cut back on the availability of credit, discourage innovation, and tie up many banks and small businesses in a new web of regulation. The Chamber and the community bankers have been taking the lead in fighting off the Administration’s proposal, since small business folk and local bankers who serve them win far more sympathy than do big banks and mortgage brokers at the moment.

Not that Frank’s moves are likely to slow them down. Even amidst news reports this AM that Frank was pulling back on the proposal, the Chamber announced a press conference for tomorrow morning once again criticizing the agency and how it would hurt small business.

The New Yorker has a great profile of Sheila Bair, the populist Republican who's at the helm of the FDIC. (h/t Riverdaughter)

As you may already know, Bair is not well liked by the Wall St. crowd that's running the White House show. (Apparently she has this bizarre idea that her job is to look out for working folk. Crazy talk!) Well, she's very popular with regular people - the administration wouldn't get rid of her, it would make a stink. Instead, they've just neutered her:

These debates entered into the Administration’s discussions about building a new regulatory architecture. In late March, Geithner previewed for Congress some of the key concepts that Treasury wanted. The outline seemed to match the Bair camp’s ideas. [Ladies, has this ever happened to you?] A new authority with the power to take over large financial institutions that posed a systemic risk to the economy was modeled on the F.D.I.C., which, Geithner suggested in his testimony, would be an equal partner with Treasury in resolving such firms if they failed. He seemed to be saying that although he and Bair may have disagreed about how to handle the current crisis, there was much more consensus about how to deal with a future one.

But in the white paper detailing the new legislation, which the Administration released on June 17th, all the new authority to regulate firms that posed systemic risk was vested in the Federal Reserve. During Geithner’s testimony before the Senate, Jim Bunning, of Kentucky, echoing Bair, was incredulous. “It took fourteen years for the Fed to write one regulation on mortgages after we gave it the power to do that,” he said. “What makes you think that the Fed will do better this time around?” In addition, while the March plan said that the “Secretary and the FDIC would decide” how to resolve a failing firm, the new plan said such power should “be vested in Treasury.” Geithner could appoint the F.D.I.C. to do the technical work of cleaning up the firm, but between late March and mid-June — when Bair’s aggressive ideas about how to handle Citigroup leaked to the press — Bair’s agency had been downgraded from Treasury’s equal partner to a sidekick.

The senior Treasury official said that stripping authority from the F.D.I.C. had nothing to do with pressure from the banks. “Making a group decision on something that must be done really quickly is not easy,” he said. “At the end of the day, someone has to have the ability to make a call, and it’s better to have that authority vested in one person.”

When I asked Bair about the plan, she said, “I think it reflected a lot of input from a lot of different agencies, and the private sector, and insurance and consumer groups. It’s a very difficult task to try to balance all the different perspectives and come up with a package, and every compromise is going to have people who are unhappy about various parts of it. So I think it’s a starting point.” I said that she sounded disappointed. “I don’t know if ‘disappointed’ is the right word,” she replied.

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Why exactly does George W. Bush think he has even a smidgen of credibility when discussing economic issues? Here's what he said yesterday:

"I know it's going to be the private sector that leads this country out of the current economic times we're in," the former president said to applause from members of a local business group. "You can spend your money better than the government can spend your money."

Repeatedly in his hourlong speech and question-and-answer session, Mr. Bush said he would not directly criticize the new president, who has moved to take over financial institutions and several large corporations. Several times, however, he took direct aim at Obama policies as he defended his own during eight years in office.

"Government does not create wealth. The major role for the government is to create an environment where people take risks to expand the job rate in the United States," he said to huge cheers.

Brian Williams briefly mentioned it in his newscast yesterday, pointing out that it was actually Bush who signed the first bailout packages for the banks and auto and insurance industries. But that was really only the half of it.

Ed Shultz, on his MSNBC show yesterday, did an admirable job of tackling the rest of the matter:

What did he do? Attack the president of the United States and basically did what he does pretty well, which is rewrite history. Now Bush is babbling, trying to make sense out of the worst eight years this country has ever had since the Great Depression.

And if he‘s going to go out and do this, and I think we need to remind the American people, and I think we have an obligation to say this—Bush gave us what? Record deficits, record foreign debt, record trade deficits, butchering the middle class, letting the financial sector run wild with absolutely no oversight. Those are a just a few things—I don‘t have a whole hour to do this, but the American people are not stupid. Our new NBC News poll proves this. The American people do not blame Barack Obama for the fiscal condition of this country.

Here are the numbers. Fifty-three percent say that Bush and the congressional Republicans are to blame. Only six percent blame President Obama. Now, weeks ago, the president said he didn‘t want to second-guess the current president. That‘s exactly what he‘s doing. Bush is lying and he is setting the framework for the Republicans to make the case against President Obama at a very tough time. Gosh, how one speech can change people. It‘s almost like the state of the union address, the 16 words.

This is the last person that anybody in the Obama administration should pay attention to. Bush has no credibility. He has no authority. He has no clue what‘s going on. You see, he didn‘t stop with the economy. Brainless Bush went out and goes after, with a generic statement about health care reform. He really cared about that. He goes on to say, “There are a lot of way to remedy the situation without nationalizing health care.” He also said - “You can spend your money better than the government can spend your money.” I tell you what, just a couple of dandies out there on the rubber-chicken circuit.

This is a man who sat there for eight years—eight years—and did absolutely nothing when it comes to the number one issue in this country for families, which is health care. He told you to go out and get a private savings account. This is vintage Bush, appealing to the lowest common denominator when it comes to the problems we face as a country. I guess you could say that things haven‘t changed. They think we‘re stupid. But in the words of the former president, “Fool me once, you can‘t get fooled again, or whatever that was.”

Thanks, Ed. Somebody needed to say it. Too bad you seem to have been one of the few doing so.

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Charles Grassley is starting to sound as incoherent during his television interviews as he does in his Tweets. Grassley doesn't think we need more regulation. We just need more transparency. Yeah, that's going to make the finace companies behave. And when asked if the banks are in any position to protest if they're not going to make as much money, Grassley comes back with this:

Greed is human nature. We shouldn't blame greed any more than you'd blame gravity when a plane has an accident and goes down.

I'm sorry Senator, but I think we can blame greed for the mess we're in. Greed and the unwillingness of the government to put a check on it.

Keep in mind that the very same politicians who are supporting this sort of thing are also telling us, in very grave tones, how worried they are about the deficit and why it's impossible to do things like provide universal health care or more money for education. One could reasonably retort that it's simply a matter of different priorities. Just remember: Although we elect the legislators, it's the corporate lobbyists who keep those high-priced perks coming!

May 22 (Bloomberg) -- Banks negotiating to reclaim stock warrants they granted in return for Troubled Asset Relief Program money may shortchange taxpayers by almost $10 billion if Treasury Secretary Timothy Geithner’s first sale sets the pace, data compiled by Bloomberg show.

While 17 financial institutions have repaid TARP funds, two have come to terms with the U.S. on the value of the rights to buy stock that taxpayers received for the risk of recapitalizing the industry. The first was Old National Bancorp in Evansville, Indiana, which gave the Treasury Department $1.2 million last week for warrants that may have been worth $5.81 million, according to the data.

If Geithner makes the same deal for all companies in the rescue program, lenders may walk away with 80 percent of the profits taxpayers might have claimed.

“For once we’d like to get a fair value when we come into contact with the banking system,” said Representative Brad Miller, a North Carolina Democrat and chairman of the Investigations and Oversight Subcommittee of House Science and Technology Committee. “We don’t want a ruthless bargain.”

Imagine. These statements are made by one of their biggest shareholders:

May 2 (Bloomberg) -- Berkshire Hathaway Inc. Vice Chairman Charles Munger, whose company is the largest private shareholder in Goldman Sachs Group Inc. and Wells Fargo & Co., said banks will use their “enormous political power” to prevent changes to the industry that would benefit society.

“This is an enormously influential group of people, and 90 percent of that influence is being spent to gain powers and practices that the world would be better off without,” Munger, 85, said yesterday in an interview with Bloomberg Television. “It will be very hard to accomplish the kind of surgery that would be desirable for the wider civilization.”

Munger said policy makers should seek to impose limits on banks that are deemed “too big to fail” after financial institutions worldwide suffered more than $1 trillion in losses. The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the recession.

“We need to remove from the investment banking and the commercial banking industries a lot of the practices and prerogatives that they have so lovingly possessed,” Munger said. “If they are too big to fail, they are too big to be allowed to be as gamey and venal as they’ve been -- and as stupid as they’ve been.”

Wait, wait, I can hardly read these sad statements through my tears - of laughter! This, from the people who brought us this entire house of cards that just collapsed? The people whose lobbyists have stacked the financial deck against people like us with late fees, pre-payment penalties and unregulated interest rates are actually telling us IT ISN'T FAIR?

WASHINGTON -- The banking industry is aggressively lobbying the Treasury Department to make it less costly for financial institutions to get out of the Troubled Asset Relief Program.

The move could prove controversial for the banking industry, which is busy deflecting criticism about higher fees it is charging consumers for credit cards and other products and services.

At issue are "warrants" the government received when it bought preferred stock in roughly 500 banks over the past six months as part of TARP. The warrants allow the government to buy common stock in the banks at a later date so taxpayers can receive more of a return on their investment when the banking industry recovers.

Many banks want to return their TARP money and, as part of that effort, want to expunge the warrants. To do that, banks must either buy them back from the government or allow the Treasury to sell them to private investors.

Today, most of the warrants are essentially worthless, because their exercise price is higher than where most banks' stocks are trading. But the government believes the warrants still have value, since they give the Treasury the right to buy common stock at a set price for 10 years.

Bankers say it is unfair to charge what amounts to a "prepayment penalty," which makes it additionally onerous to escape TARP. Bank representatives say the cost of buying back the warrants could be equivalent to paying 60% annual interest on short-term loans. That, they argue, would exacerbate banks' existing problems.

Uh, isn't this what Krugman and Stiglitz have been saying? It's why the two Nobel prize winners have been urging Obama to nationalize the banks:

WASHINGTON (Reuters) - Treasury secretary Timothy Geithner on Tuesday said difficulty in setting a value on banks' toxic assets was a continuing hindrance to their ability to lend and borrow.

In prepared testimony for delivery to the Congressional Oversight Panel that monitors Treasury's efforts to bail out troubled banks, Geithner said toxic assets were "congesting" the U.S. financial system and making it hard to get credit flowing normally again.

"Uncertainty about the value of legacy assets is constraining the ability of financial institutions to raise private capital," he said, adding that he hoped a public-private investment program will improve the ability to put a price on troubled mortgage and other assets.

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Matt Taibbi talked to Rachel Maddow about his article at Rolling Stone The Big Takeover and what needs to be done with these mega-financial institutions that are too "big to fail".

Maddow: You think the Obama administration should break the financial companies that are in crisis down. Stop letting them get so complex that they can't be understood and they can't be regulated. Why do you think that should happen?

Taibbi: Well first of all I'm obviously not an expert on any of this stuff but I think on this one point the logic here to me doesn't seem all that hard to follow. If these companies are too big to fail, they're too big to exist. In a capitalist society we can't have a situation where all you have to do to stay in business forever is get so big that whenever you screw up the government comes and bails you out.

That's the reason we had the trust busting and the anti-monopoly laws back in the day and I think that's the reason we have to make sure that these companies are manageable and if they are incompetent and irresponsible that we can just let them fail.

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