Given the extent and long-term nature of today’s crisis, it’s shocking that bad policy practically assures the worst outcome. Maybe a government/Wall Street cabal prefers it to capitalize on the wreckage at fire sale prices, at home and globally, as part of a long-term process of sucking wealth to the top while ignoring its fallout, both human and economic. Those calculations don’t enter their sophisticated models, only bottom line ones they can bank on.
Other Bank Bailout Critics
Willem Buiter was a former member of the Bank of England’s Monetary Policy Committee (1997 – 2000). He’s now has a Maverecon blog and is a Financial Times (FT) regular. He’s also a fierce critic of bank bailouts, a policy he says wastes good time and money and is destined to fail.
He writes that “the good bank solution and slaughter of the unsecured creditors should have been pursued actively as soon as it became clear that most of the US border-crossing banking system was insolvent.” Soon enough it will be apparent anyway, before year end. “At that point, the de facto insolvency … will be so self-evident that even the joint and several obfuscation of banks and Treasury will be unable to deny the obvious.” And there’ll be no fiscal resources to the rescue. “The likelihood of the US Congress voting even a nickel in additional financial support for the banks is zero.”
Joseph Stiglitz was even blunter in an April 17 Bloomberg interview headlined: “Stiglitz Says White House Ties to Wall Street Doom Bank Rescue.” He accused the administration of bailing out bankers at the expense of the economy. “All the ingredients they have so far are weak, and there are several missing” ones. The people who created this monster are “either in the pocket of the banks or they’re incompetent.”
“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 won’t act responsibly and place the banks in receivership where they belong and let shareholders, not taxpayers, take the pain. This policy guarantees failure. It’s “an absolute mess.” It’s a strategy to re-inflate a bubble that will do nothing to speed recovery. “It’s a recipe for Japanese-style malaise.”
Financial expert and investor safety advocate Martin Weiss is most critical of all. He calls bank stress tests “FLIM-FLAM” in accusing Washington of hiding the true condition of the nation’s 19 largest banks.
Key economic indicators like GDP contraction and unemployment are far worse than stress test parameters. “Our own government is clearly cooking the books – using … false criteria to deceive you; hoping you’ll trust banks that are clearly hanging by a thread.”
On May 4, they’ll announce the results – jerry-rigged to present an illusion of solvency, but clearly a deceptive lie. The economy is sinking, not stabilizing, let alone recovering. The administration is bailing out bankers while wrecking the economy and millions of households. Why isn’t Washington addressing the tough questions, he asks. Because the answers have them “terrified,” so they play for time while home foreclosures are exploding, factories are sitting idle, consumption keeps falling, yet they hope conditions will improve.
No one asks what will happen if states and cities can’t provide vital services; hospitals have to close down “due to disruptions in insurance payments”; “supermarket shelves are emptied because trucking companies can’t get short-term loans to stay in business”; utilities “are crippled as the crisis kills the revenues they count on from corporations”; and “soaring deficits drive interest rates sky-high and gut the dollar, driving the cost of living through the roof.”
What if one day we discover America is no longer America. What if we realize that day is today.
Another Day, Another Scheme
The latest one lets ordinary people participate in Geithner’s Public-Private Partnership Program (PPIP) that sounds suspiciously like “liars’ loan” fraud, except this time “investments” in worthless junk are involved that will separate fools from their money.
The New York Times headlined the plan by comparing it to WWI Liberty Bonds that helped the country win the war. Now it’s “to come to the aid of their banks – with the added inducement of possibly making some money….” The idea is for “large investment companies to create the financial-crisis equivalent of war bonds: bailout funds” to sucker the unwary to “invest” and, simultaneously, quiet opposition to the handouts.
According to money management firm BlackRock director Steven Baffico: “It’s giving the guy on Main Street an equal seat at the table next to the big guys.” Pimco’s Bill Gross called it a “win-win-win policy.” Absolutely for him so he loves it.
Plans are still being discussed. They won’t likely be announced for several months, but already the scheme is apparent. It’s to offload toxic junk on the public, let unwary investors take losses, relieve troubled banks of more of them, and arrange for investment fund issuers (like Pimco and BlackRock) to reap healthy fees if enough suckers can be enlisted to go along.
As troublesome is FDIC’s role in the scam – through its transformation from insuring depositors to a much greater one guaranteeing over $1 trillion in junk assets, way over its charter $30 billion limit by twisting the rules to arrange it.
Its charter allows extraordinary steps to be taken when an “emergency determination by secretary of the Treasury” is made to mitigate “systemic risk.” However, its Section 14 Borrowing Authority states:
“The Corporation is authorized to borrow from the Treasury … for insurance purposes [not speculation, bailouts, or other schemes, an amount] not exceeding in the aggregate $30,000,000,000 outstanding at any one time…. Any such loan shall be used by the Corporation solely in carrying out its functions with respect to such insurance [of bank deposits, then up to $5000, now temporarily at $250,000]….”
“Before issuing an obligation or making a guarantee, the Corporation shall estimate the cost of such obligations [as well as market value]…. [T]he Corporation may not issue or incur any obligation, if, after [doing so] the aggregate amount of obligations of the Deposit Insurance Fund [exceeds] the total of the amounts authorized [$30 billion under] section 14(a).”
PPIP violates FDIC rules. If it’s opened to the public, greater fraud will result with ordinary people hit hardest as usual, the best reason to avoid this and alert others to be as prudent. It’s another dubious scheme to separate the unwary from their money and redirect it to the top – to the same fraudsters responsible for the crisis and their investment company partners going along with the scam.
The Treasury extended the deadline for PPIP participants (to April 24) and loosened some of its guidelines – suggesting that investor support has been less than expected.