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From Democracy Now, Robert Sheer weighs in on how difficult it is to cover Wall Street during a discussion about Wall Street's massive profits and bonuses while the economy for most Americans continues to deteriorate. The one bright spot here is that tonight the House Financial Services Committee approved Ron Paul and Alan Grayson's amendment to audit the Fed.

Robert Sheer's latest article at Truthdig is Who Are You and What Have You Done With the Community Organizer We Elected President?

AMY GOODMAN: What about this new government report that’s found Goldman Sachs could have suffered dramatic losses if the federal government hadn’t intervened to bail out AIG, American International Group, the report by the special inspector general for the government bailout program raising doubts about Goldman’s previous claims that it was hedged against potential AIG losses?

ROBERT SCHEER: Yes, well, first of all, this has been—

AMY GOODMAN: What does all that mean?

ROBERT SCHEER: This is the big lie from Goldman, is that, you know, we didn’t—look, look what happened. Lehman was Goldman’s competitor, was allowed to go belly up, OK? The Secretary of the Treasury was a former head of Goldman Sachs. I don’t want to get into conspiracy theories here, but Robert Rubin was a head of Goldman Sachs, OK? And Paulson was a head of Goldman Sachs. They decide not to—you know, and Rubin was involved in these discussions, Lawrence Summers, Paulson and so forth. Timothy Geithner, who is our Secretary of Treasury, was head of the New York Fed for five years while all this was going on. So they say, “Let Lehman go, you know, down the tubes,” which is great for Goldman Sachs, because now you have basically two investment houses that are getting all the business. “But on the other hand, we’ll put all this money into AIG,” which was backing these junkie derivatives, these mysterious packages, “and it will be a pass through. People won’t notice, because we’re giving it to AIG.” $180 billion of our taxpayer money, we taxpayers get nothing in return, AIG is still in the toilet, but Goldman got its money. You know, it got upwards of $20 billion, that they don’t have to pay back. They make a big thing about “We’re going to pay back some of the TARP funds” and everything. And by the way, they were allowed to become a bank. No hearings, no judicial proceedings and so forth. You know, the very thing Lehman was asking for—“Let us become a bank so we can get some of this TARP funds and everything”—that was granted to Goldman Sachs.

You know, Ron Paul, by the way, who has been trying to go after the Fed, and he has an accountability piece of legislation that the Democrats have gutted, and said, “Let’s have an audit of the Fed. Let’s find out what does the Federal Reserve do. What are the deals they made? Where did the money go?” We don’t have that. And the inspector general of the Treasury Department, the inspector general, you know, Elizabeth Warren, all of these people have pointed—from the Congressional Oversight Panel—all of these people point out, “We don’t have the facts. We don’t know where the trillions are going.” We know trillions have been committed. We know all of these huge pools—Bank of America’s $300 billion of toxic assets have been backed up. But there’s no accountability.

I have covered the CIA, I’ve covered national security, and I’ve covered banking. I did it for the LA Times in one way or another for thirty years, OK? It is more difficult to cover Wall Street, in terms of secrecy and classification and their protection, than it is to cover the CIA and the Pentagon. That much I’ll tell you. You know, you get greater claim on the truth covering the Pentagon, as I did in my last book, than I’m having in my current book called The Great American Stick-Up that Nation Books is publishing. And, you know, these people go, “No, it’s proprietary. It’s our business. It has nothing to do with you.” And that goes for the Fed, which is supposed to be a government agency.

And so, for Chris Dodd to say, “No, we have to take power away from the Fed. We have to create a new independent agency to supervise these too big to fail institutions to make sure that they don’t go belly up and we taxpayers pay for them again,” he’s absolutely right. And people watching this, if there’s one thing they should demand from the Obama administration, is get behind the Dodd bill on taking power from the Fed and creating a new publicly accountable agency. That’s absolutely critical. Without that, we’re not going to get out of this mess, and we’re not going to prevent a future one.

Matt Taibbi says we should run Elizabeth Warren for president in 2012, and the more I read about how the since-appointed members of the Obama administration handled the financial crisis, the more I like the idea:

Oct. 27 (Bloomberg) -- In the months leading up to the September 2008 collapse of giant insurer American International Group Inc., Elias Habayeb and his colleagues worked nights and weekends negotiating with banks that had bought $62 billion of credit-default swaps from AIG, according to a person who has worked with Habayeb.

Habayeb, 37, was chief financial officer for the AIG division that oversaw AIG Financial Products, the unit that had sold the swaps to the banks. One of his goals was to persuade the banks to accept discounts of as much as 40 cents on the dollar, according to people familiar with the matter.

[...] Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve. Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps -- insurance-like contracts that backed soured collateralized-debt obligations.

CDOs are bundles of debt including subprime mortgages and corporate loans sold to investors by banks.

Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.

The New York Fed’s decision to pay the banks in full cost AIG -- and thus American taxpayers -- at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III.

[...] A spokeswoman for Geithner, now secretary of the Treasury Department, declined to comment. Jack Gutt, a spokesman for the New York Fed, also had no comment.

One reason par was paid was because some counterparties insisted on being paid in full and the New York Fed did not want to negotiate separate deals, says a person close to the transaction. “Some of those banks needed 100 cents on the dollar or they risked failure,” Vickrey says.

In other words, Geithner used taxpayer money from one big disaster to paper over the fact that all the other parties were bankrupt, too - and probably still are, no matter what you read in the papers. Wait until the commercial market crashes. Wheee!

I just don't know what the best options are here, but I'm not feeling reassured that the people advising Geithner were making so much money from the people they're supposed to be regulating:

Oct. 14 (Bloomberg) -- Some of Treasury Secretary Timothy Geithner’s closest aides, none of whom faced Senate confirmation, earned millions of dollars a year working for Goldman Sachs Group Inc., Citigroup Inc. and other Wall Street firms, according to financial disclosure forms.

The advisers include Gene Sperling, who last year took in $887,727 from Goldman Sachs and $158,000 for speeches mostly to financial companies, including the firm run by accused Ponzi scheme mastermind R. Allen Stanford. Another top aide, Lee Sachs, reported more than $3 million in salary and partnership income from Mariner Investment Group, a New York hedge fund.

As part of Geithner’s kitchen cabinet, Sperling and Sachs wield influence behind the scenes at the Treasury Department, where they help oversee the $700 billion banking rescue and craft executive pay rules and the revamp of financial regulations. Yet they haven’t faced the public scrutiny given to Senate-confirmed appointees, nor are they compelled to testify in Congress to defend or explain the Treasury’s policies.

“These people are incredibly smart, they’re incredibly talented and they bring knowledge,” said Bill Brown, a visiting professor at Duke University School of Law and former managing director at Morgan Stanley. “The risk is they will further exacerbate the problem of our regulators identifying with Wall Street.”

Gee, ya think?

[...] Treasury spokesman Andrew Williams said the department needs people with a deep understanding of markets and the financial system, especially as it works to fend off the worst recession in half a century.

“The secretary thought that the best way to utilize their talents was to allow these individuals to provide advice to the secretary on policy issues through appointments as counselor,” Williams said.

All of Geithner’s counselors are subject to federal ethics rules, including a pledge to avoid contact with their former firms for at least a year, Williams added.

Most officials at the Treasury who have been approved by Congress come from academic, legal or non-Wall Street backgrounds.

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.

Someone's sounding just a little touchy, aren't they? Yes, Tim, you and your buddies from Wall St. have done such a bang-up job, I can understand why you're upset by all these questions:

WASHINGTON -- Treasury Secretary Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration's faltering plan to overhaul U.S. financial regulation, according to people familiar with the meeting.

The proposed regulatory revamp is one of President Barack Obama's top domestic priorities. But since it was unveiled in June, the plan has been criticized by the financial-services industry, as well as by financial regulators wary of encroachment on their turf.

Mr. Geithner told the regulators Friday that "enough is enough," said one person familiar with the meeting. Mr. Geithner said regulators had been given a chance to air their concerns, but that it was time to stop, this person said.

Among those gathered in the Treasury conference room were Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Schapiro and Federal Deposit Insurance Corp. Chairman Sheila Bair.

Friday's roughly hour-long meeting was described as unusual, not only because of Mr. Geithner's repeated use of obscenities, but because of the aggressive posture he took with officials from federal agencies generally considered independent of the White House. Mr. Geithner reminded attendees that the administration and Congress set policy, not the regulatory agencies.

Mr. Geithner, without singling out officials, raised concerns about regulators who questioned the wisdom of giving the Federal Reserve more power to oversee the financial system. Ms. Schapiro and Ms. Bair, among others, have argued that more authority should be shared among a council of regulators.

"You are talking about tremendous regulatory power being invested in whatever this entity is going to be," Ms. Bair told the Senate Banking Committee last month. "And I think, in terms of checks and balances, it's also helpful to have multiple views being expressed and coming to a consensus."

Bair testified yesterday in front of the Senate committee on Banking, Housing and Urban Affairs and she probably caused Geithner's blood pressure to shoot through the roof. Oh well! I'm a big fan of hers and I appreciate her consistent support of workers and small business.

Via The Big Picture:

This an interview of former Assistant Secretary of Treasury Paul Craig Roberts. At 2:40 (of the 3:08 interview) was this exchange:

Max Keiser: “Does the US Secretary of the Treasury work for the people or does he work for the banking system on Wall Street?”

Dr. Paul Craig Reports: “He works for Goldman Sachs.”

He also called the attempts to bail out the banking system to-date “a fraud.”

Oh, and in other cheery economic news, here's Nouriel Roubini:

The June employment report suggests that the alleged green shoots are mostly yellow weeds that may eventually turn into brown manure. The employment report shows that conditions in the labor market continue to be extremely weak, with job losses in June of over 460,000. With the current rate of job losses, it is very clear that the unemployment rate could reach 10% by later this summer--around August or September--and will be closer to 10.5%, if not 11%, by year-end. I expect the unemployment rate is going to peak at around 11% at some point in 2010, well above historical standards for even severe recessions.

It's clear that even if the recession were to be over anytime soon--and it's not going to be over before the end of the year--job losses are going to continue for at least another year and a half. Historically, during the last two recessions, job losses continued for at least a year and a half after the recession was over. During the 2001 recession, the recession was over in November 2001, and job losses continued through August 2003 for a cumulative loss of jobs of over 5 million; this time we are already seeing more than 6 million job losses and the recession is not over.

The details of the unemployment report are even worse than the headline. Not only are there large job losses right now, but as a way of sharing the pain, firms are inducing workers to reduce hours and hourly wages. Therefore, when we're looking at the effect of the labor market on labor income, we should consider that the total value of labor income is the product of jobs, hours and average hourly wages--and that all three elements are falling right now. So the effect on labor income is much more significant than job losses alone.

The details also suggest that other aspects of the labor markets are worsening. If you include discouraged workers and partially employed workers, the unemployment rate is already above 16%. If you consider also that temporary jobs are falling now quite sharply, labor market conditions are becoming worse and the average duration of unemployment now is at an all-time high. So people not only are losing jobs, but they're finding it harder to find new jobs. So every element of the labor market is worsening.

The unemployment rate rose only marginally from 9.4% to 9.5%, but that's because so many people are discouraged that they exited the labor force voluntarily and therefore are not counted in the official unemployment rate.

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.”

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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This Bill Moyers interview is going viral so fast, I can't even keep up with it. And for a very good reason - former S&L regulator Bill Black explains exactly why the current banking bailout is a mistake. There's so much information, you simply have to read or watch the entire thing:

BILL MOYERS: Yeah. Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover-up to keep us from knowing what went wrong?

WILLIAM K. BLACK: Absolutely.

BILL MOYERS: You are.

WILLIAM K. BLACK: Absolutely, because they are scared to death. All right? They're scared to death of a collapse. They're afraid that if they admit the truth, that many of the large banks are insolvent. They think Americans are a bunch of cowards, and that we'll run screaming to the exits. And we won't rely on deposit insurance. And, by the way, you can rely on deposit insurance. And it's foolishness. All right? Now, it may be worse than that. You can impute more cynical motives. But I think they are sincerely just panicked about, "We just can't let the big banks fail." That's wrong.

BILL MOYERS: But what might happen, at this point, if in fact they keep from us the true health of the banks?

WILLIAM K. BLACK: Well, then the banks will, as they did in Japan, either stay enormously weak, or Treasury will be forced to increasingly absurd giveaways of taxpayer money. We've seen how horrific AIG -- and remember, they kept secrets from everyone.

Continue reading »

The nice thing about having the Democrats in charge is, you actually do get some much-needed regulation instead of idiotic blather about the self-healing properties of the Almighty Free Market:

In response to the worst economic downturn since the Great Depression, Geithner outlined a six-part framework that would result in the most significant new regulation of the financial system since the broad changes made during that crisis more than 70 years ago.

"We have an opportunity we have not had in generations to put in place a stronger and more resilient system," Geithner said.

The key elements of the Obama administration's proposals are:

• Give a single government entity, possibly the Federal Reserve, the power and authority to oversee the entire economy for signs of "systemic risk."

• Establish a government mechanism to seize and dismantle large institutions whose failure threatens the nation's financial stability.

• Enact tougher requirements for the amount of money and assets financial institutions need to have on hand so they can withstand economic troubles.

• Require large private investment funds to register with the Securities and Exchange Commission.

• Set up a new, comprehensive framework of regulation of the complex financial instruments known as derivatives, including a central clearinghouse for trades in that market.

• Develop new, stronger requirements for money market funds so increased withdrawals won't threaten the broader financial system.

"What we need is better, smarter, tougher regulation," Geithner said.

Who knew that Paul Krugman would become a YouTube darling?

I saw this article the other day about how Tim Geithner is swamped with work because he doesn't have enough aides to help:

Compounding the strain on the Treasury, almost all the top posts beneath Mr. Geithner are still vacant. Though he has hired about 50 senior advisers — about half the number he hopes to recruit — the White House has become so worried about potential tax problems and other issues in the backgrounds of candidates that it has nominated only a handful of people.

On Sunday, the White House announced that it would nominate Alan B. Krueger, an economist at Princeton, to be assistant Treasury secretary for economic policy. It will also nominate David S. Cohen to be assistant secretary for policy on terrorist financing and Kim N. Wallace as assistant secretary in charge of Congressional relations.

That still left many positions, including the No. 2 post at Treasury, without even a nominee.

Mr. Geithner, as a result, has been pulled in many directions at once and remains virtually the only public face of the Treasury. He is the sole person who can go before Congress to promote and defend the department’s decisions to provide billions of dollars for General Motors, Chrysler, the nation’s banks or the millions of homeowners facing foreclosure.

But this post on FedBlog makes a very relevant point:

So, Tim Geithner doesn't have a lot of people helping him out at the Treasury, and he's overstreteched. This is obviously a bad thing. A lot of the debate over Geithner's overstretch has focused on how the Obama administration got spooked by some early confirmation scares, and as a result, has moved far too slowly to fill some positions at arguably the most important department in government at the moment.

It's hard to argue that it's in any way a good thing that Obama hasn't filled a lot of key posts at Treasury. But that kind of misses the point. Obama shouldn't have to appoint that many people in the first place. There are far too many positions that the president has to fill personally that could be easily and competently done by career employees. Of course the president needs people who can implement his agenda and set policy. That's what department heads and a layer of political appointees immediately below him or her are for. But agencies and departments would be vastly better served by having high-ranking career employees bringing their institutional memory and experience to high-level positions in departments and ensuring that they can continue to function no matter how far along the president is in his vetting and appointments process.

You know who Pete Peterson is, right? He's the wingnut hedge-fund billionaire who's pledged a billion dollars to "reform" (and we know what that word means to the right wing) Social Security and Medicare. Via lambert, from Institutional Risk Analysis:

As we discussed with Josh Rosner and will be writing about same next week, Treasury Secretary Tim Geithner and Fed Chairman Bernanke think they are driving this process, but in fact the markets are setting the agenda. Either we act now to deal with AIG and C and take these names off the table before the other zombies arrive for the dance party, or we risk being overwhelmed. If we have a choice between preserving the credit standing of the US Treasury and flushing AIG, C and every other CDS counterparty on the planet, we'll take the latter every time.

Indeed, yesterday we were slumming at the Four Seasons in New York. Among the dinosaurs we observed grazing in the tall grass of this Midtown Manhattan refuge for the transactional class was former C director Robert Rubin, former New York Fed Chairman Pete Peterson and Treasury Secretary Geithner, who apparently was there to get new instructions from his sponsors.

Before Geithner arrived for lunch, Peterson reportedly asked one NY real estate mogul: "How much of that toxic paper is there?" Now we may know where Geithner gathers his market intelligence -- over a luncheon table in New York with his owners. Next time we are going to bring the flip-cam.

But isn't it nice that the man who wants to take our Medicare and Social Security (so we can see it go down the tubes in the market, I guess) has such good relationships with his employees!

h/t Scarce. From Flinch Studio.

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One of the reasons Obama is having trouble with the stimulus bill is that ordinary people lump it in with this steaming pile called the bank bailout:

WASHINGTON— The Obama administration’s new plan to bail out the nation’s banks was fashioned after a spirited internal debate that pitted the Treasury secretary, Timothy F. Geithner, against some of the president’s top political hands.

In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials.

Mr. Geithner, who will announce the broad outlines of the plan on Tuesday, successfully fought against more severe limits on executive pay for companies receiving government aid.

He resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid.

Because of the internal debate, some of the most contentious issues remain unresolved.

[...] Abandoning any pretense about limiting the moral hazards at companies that made foolhardy investments, the plan also will not require shareholders of companies receiving significant assistance to lose most or all of their investment. Some officials had suggested that the next bailout phase not protect existing shareholders. (Shareholders at most banks that fail will continue to lose their investment.)

I wait with interest to hear Obama explain why the people who put this country's economy into a nosedive should have no restrictions on how they spend our money!