Sunday, April 19, 2009

Stiglitz Says Ties to Wall Street Doom Bank Rescue

Stiglitz is Left-leaning but is a very distinguished economist. Most of what he says seems obviously true to me. Savers deserved protection under existing FDIC guarantees but the insolvent banks should have been allowed to fail -- as any badly managed business should be -- JR

The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said. “All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.”

The Troubled Asset Relief Program, or TARP, isn’t large enough to recapitalize the banking system, and the administration hasn’t been direct in addressing that shortfall, he said. Stiglitz said there are conflicts of interest at the White House because some of Obama’s advisers have close ties to Wall Street. “We don’t have enough money, they don’t want to go back to Congress, and they don’t want to do it in an open way and they don’t want to get control” of the banks, a set of constraints that will guarantee failure, Stiglitz said.

The return to taxpayers from the TARP is as low as 25 cents on the dollar, he said. “The bank restructuring has been an absolute mess.” Rather than continually buying small stakes in banks, the government should put weaker banks through a receivership where the shareholders of the banks are wiped out and the bondholders become the shareholders, using taxpayer money to keep the institutions functioning, he said.

Stiglitz, 66, won the Nobel in 2001 for showing that markets are inefficient when all parties in a transaction don’t have equal access to critical information, which is most of the time. His work is cited in more economic papers than that of any of his peers, according to a February ranking by Research Papers in Economics, an international database.

Financial shares have rallied in the past month as Goldman Sachs Group Inc., JPMorgan Chase & Co., Citigroup Inc. all reported better-than-expected earnings in the first quarter. The Standard & Poor’s 500 Financials Index has soared 91 percent from its low of 78.45 on March 6.

The Public-Private Investment Program, PPIP, designed to buy bad assets from banks, “is a really bad program,” Stiglitz said. It won’t accomplish the administration’s goal of establishing a price for illiquid assets clogging banks’ balance sheets, and instead will enrich investors while sticking taxpayers with huge losses, he said.

“You’re really bailing out the shareholders and the bondholders,” he said. “Some of the people likely to be involved in this, like Pimco, are big bondholders,” he said, referring to Pacific Investment Management Co., a bond investment firm in Newport Beach, California.

Stiglitz said taxpayer losses are likely to be much larger than bank profits from the PPIP program even though Federal Deposit Insurance Corp. Chairman Sheila Bair has said the agency expects no losses. “The statement from Sheila Bair that there’s no risk is absurd,” he said, because losses from the PPIP will be borne by the FDIC, which is funded by member banks. Andrew Gray, an FDIC spokesman, said Bair never said there would be no risk, only that the agency had “zero expected cost” from the program.

“We’re going to be asking all the banks, including presumably some healthy banks, to pay for the losses of the bad banks,” Stiglitz said. “It’s a real redistribution and a tax on all American savers.”

Stiglitz was also concerned about the links between White House advisers and Wall Street. Hedge fund D.E. Shaw & Co. paid National Economic Council Director Lawrence Summers, a managing director of the firm, more than $5 million in salary and other compensation in the 16 months before he joined the administration. Treasury Secretary Timothy Geithner was president of the New York Federal Reserve Bank. “America has had a revolving door. People go from Wall Street to Treasury and back to Wall Street,” he said. “Even if there is no quid pro quo, that is not the issue. The issue is the mindset.” ...

Stiglitz was also critical of Obama’s other economic rescue programs. He called the $787 billion stimulus program necessary but “flawed” because too much spending comes after 2009, and because it devotes too much of the money to tax cuts “which aren’t likely to work very effectively.” “It’s really a peculiar policy, I think,” he said.

The $75 billion mortgage relief program, meanwhile, doesn’t do enough to help Americans who can’t afford to make their monthly payments, he said. It doesn’t reduce principal, doesn’t make changes in bankruptcy law that would help people work out debts, and doesn’t change the incentive to simply stop making payments once a mortgage is greater than the value of a house.

Stiglitz said the Fed, while it’s done almost all it can to bring the country back from the worst recession since 1982, can’t revive the economy on its own. Relying on low interest rates to help put a floor under housing prices is a variation on the policies that created the housing bubble in the first place, Stiglitz said.




During a White House press briefing yesterday, ABC's Jake Tapper pointed out that unemployment is right about where an Obama economic adviser predicted it would be without the stimulus.

Tapper also noted that Obama had announced the 2,000th stimulus project the day before, but it turns out that this is the 2,000th planned project. Tapper asks Gibbs: How many projects have actually been started?

Gibbs will, uh, look into it: "I can certainly look for a number. I think what we highlighted was the fact that you've got bids that are coming in. You've got the acceptance of a bid. But I can get exact numbers in terms of how much ground has actually been broken."
Oh, and about that very worthwhile 2,000th project, the Christian Science Monitor reports:
[I]t seems almost churlish to question whether Kalamazoo County really needs three east- and three west-bound lanes on I-94, especially at a cost of $68 million to federal taxpayers. While the population of the western Michigan county has grown 3 percent since 2000, it’s not exactly congested. “We’ve got a lot of things to deal with out here, but traffic isn’t one of them,” said Monitor correspondent and Kalamazoo resident Yvonne Zipp in an interview. Rush hour lasts 10 minutes, maybe 15 on a Friday, she added.




Stock market corrections are beautiful — and necessary: “Every correction is different, the result of various economic and/or political circumstances that create the need for adjustments in the financial markets. While everything is down in price, as it is now, there is actually less to worry about. When the going gets tough, the tough go shopping. In this case, an overheated real estate market, an overdose of financial bad judgment, and a damn the torpedoes stock market, propelled by demand for speculative derivative securities and Hedge Funds, finally came unglued. But it is the reality of corrections that is one of the few certainties of the financial world, one that separates the men from the boys, if you will. If you fixate on your portfolio market value during a correction, you will just give yourself a headache, or worse.”

Wiretaps OK if the Obama regime does it: "The National Security Agency intercepted private e-mail messages and phone calls of Americans in recent months on a scale that went beyond the broad legal limits established by Congress last year, government officials said in recent interviews. Several intelligence officials, as well as lawyers briefed about the matter, said the N.S.A. had been engaged in “overcollection” of domestic communications of Americans. They described the practice as significant and systemic."

Tea parties widespread: "Wednesday’s deadline for filing income tax returns offered some Americans a timely excuse to vent their frustrations as demonstrators attended more than 750 Tax Day tea parties in cities like Boston, Washington, East Hampton, N.Y., and Yakima, Wash. The events were meant to protest government spending, particularly the Obama administration’s $787 billion stimulus package and its $3.5 trillion budget. Fox News covered the events all day with reporters and hosts at the scenes. Neil Cavuto, a Fox host, and Michelle Malkin, a conservative contributor, headlined the protests in Sacramento while Sean Hannity broadcast his show from the protests in Atlanta. The Web site listed its sponsors, including FreedomWorks, a group founded by Dick Armey, the former House majority leader; Top Conservatives on Twitter; and The idea for the demonstrations grew in part out of a blast from Rick Santelli, a CNBC commentator who on Feb. 19 at the Chicago Mercantile Exchange said that the Obama administration was promoting “bad behavior”.

Swedish Canutes trying to hold back the tide: "A court last night found four men guilty of promoting copyright infringement by running The Pirate Bay, one of the world's top websites for illegal file-sharing, and sentenced them to a year in prison. The court also ordered the four - Fredrik Neij, Gottfrid Svartholm Warg, Peter Sunde and Carl Lundstroem - to pay damages of 30 million kronor ($4.9million) to the recording industry, which hailed the ruling as a symbolic victory. "The Stockholm district court has today convicted the four people charged with promoting other people's infringement of copyright laws," the court said in a statement. Representatives of the film, music and video games industry had sought 117 million kronor in damages and interest for losses incurred from millions of illegal downloads facilitated by the site. Founded in 2003, The Pirate Bay makes it possible to skirt copyright fees and share music, film and computer game files using bit torrent technology, or peer-to-peer links offered on the site. None of the material can thus be found on The Pirate Bay server itself. The four, who denied any wrongdoing, are expected to appeal against the verdict and had previously vowed to take the case as high as the Supreme Court."

The fox put in charge of the henhouse: "The White House turned to an experienced former investment banker Friday to run the federal government's $700 billion bank rescue effort, selecting the head of mortgage giant Fannie Mae as an assistant treasury secretary. Herbert Allison Jr., Fannie Mae's president and CEO, will replace Neel Kashkari, a holdover from the Bush administration. Allison, who must be confirmed by the Senate, would bear the title of assistant treasury secretary for financial stability and counselor to Treasury Secretary Timothy Geithner. He would be in charge of the Troubled Asset Relief Program, the fund that has injected billions of dollars into banks in hopes of unclogging credit. He would inherit a program that has been sharply criticized in Congress and which banks have come to view warily because of the restrictions attached to receipt of its funds".

Old dreams are new again: “Faster, more frequent Amtrak trains could be running on Texas tracks in just a few years — and someday soon, bullet trains may zoom across the prairie from a Dallas-Fort Worth hub — after President Barack Obama announced a major commitment Thursday to high-speed rail. An infusion totaling $8 billion in federal stimulus money and $5 billion from the federal budget over five years will be spent on track upgrades and other improvements in up to 10 corridors across the U.S. beginning this year.”

Obama’s opiate: “Let’s cut through all of Barack Obama’s baloney. His speech on the economy at Georgetown University on Tuesday was a testament to the massive ego of a callow leader with grandiose pretensions bordering on megalomania. Everything he outlined in his vision for a near-Utopian economic future is designed to come about through the intervention of a government central planner — his own Oneself — combined with the coercive force of government to make it happen. It’s a promise of economic growth at the point of a gun, at least tacit if not explicit — and all as if some genius in the Oval Office or elsewhere in Washington has the wherewithal to know exactly how and where to ‘invest’ and to ‘regulate’ and to ’stimulate’ and to ‘reform’ (the latter meaning, in most cases, to have government either take over something or else kill something it currently considers politically incorrect).”

And they call US paranoid … : "The federal government’s latest warning to police agencies about ‘rightwing extremists’ is an outrage and adds fuel to an increasingly troubling situation. The report, titled, ‘Rightwing Extremism: Current Economic and Political Climate Fueling Resurgence in Radicalization and Recruitment’ was produced by the Extremism and Radicalization Branch, Homeland Environment Threat Analysis Division of the Department of Homeland Security, in coordination with the FBI. It consists of 8 pages of what can only be described as paranoid ranting and conflation.” [Michelle Malkin has more details]


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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)


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