Competent Alternative Staff For Treasury

[KittyWampus]

William K. Black is Associate Professor of Economics and Law at the University of Missouri - Kansas City. He was a senior regulator during the savings and loan scandal and blew the whistle on prominent politicians, including House Speaker Wright and the five US Senators who became famous as the "Keating Five." He was the lead staffer on the successful reregulation of the S&L industry and directed the investigations that led to convictions in many of the worst S & L frauds

Robert Johnson was formerly a managing director at Soros Funds Management and chief economist of the Senate Banking Committee

Walker Todd worked for many years in the Federal Reserve System. He was a legal officer of the Federal Reserve Bank of New York and a legal and research officer at the Cleveland Federal Reserve Bank. He is the author of many studies of bank failure, reform of the Fed's discount window, open market operations, and the Reconstruction Finance Corporation of the 1930s

These three wrote "How To Stop AIG Bonuses"

http://www.huffingtonpost.com/william-black-tom-ferguson-rob-johnson-walker-todd/how-to-stop-aigs-bonuses_b_175351.html

Part I of Ferguson and Johnson's "Too Big To Bail: The 'Paulson Put,' Presidential Politics, and the Global Financial Meltdown," appears in the next issue of the International Journal of Political Economy

Brooksley Born bio from Wikipedia states from 1996-1999 she served as chairperson of the Commodity Futures Trading Commission (CFTC), the federal agency which oversees the futures and commodity options markets as well as the individuals who participate in those markets. In 2008, she appeared on the Legal Times list of "The 90 Greatest Washington Lawyers of the Last 30 Years" and was described as a "Champion".

Her appointment as a member of the CFTC, on April 15, 1994, came after a career as head of the firm's derivatives practice, where she represented clients in numerous complex litigation and arbitration cases involving financial market transactions. Among her other high-profile cases was the matter of the Hunt Brothers attempt to corner the silver market in the 1970s.

While on the commission and after becoming its chair two years later, Born sought comments on the need to regulate derivatives, specifically swaps that are traded at no central exchange, known as the dark market, and thus have no transparency except to the two counter-parties (no actual regulatory scheme was proposed at the time). The request for comments, called the "Concept Release," stated that the growth of trade in derivatives had prompted the CFTC to re-examine its regulatory scheme.

The request for comments was opposed by Federal Reserve chairman Alan Greenspan and Treasury Secretaries Robert Rubin and Lawrence Summers.

Specifically, on May 7, 1998, former SEC Chairman Arthur Levitt joined the other members of the President’s Working Group – Treasury Secretary Rubin and Federal Reserve Board Chairman Greenspan – in objecting to the issuance of the CFTC’s concept release, in which Born attempted to shed light on the dark market, citing grave concerns about the possible consequences of the CFTC’s action.

In particular, these concerns focused on the risk that such discussion would increase legal uncertainty concerning swaps and other OTC derivative instruments and, thus, destabilize what had become a significant global financial market. They claimed potential turmoil created by the report and concerns about the imposition of new regulatory costs also might have stifled innovation and pushed transactions offshore.

As the financial crisis of 2008 gained momentum, newspapers began reporting on what might be some of its causes, including the adversarial relationship Greenspan, Rubin and Levitt had with Brooksley Born, with Greenspan leading the opposition, and how Born's recommendations were suppressed.

Iris Mack From TPMuckracker, Iris Mack is a former quantitative analyst at Harvard Management Company, the university's once-vaunted endowment manager, tells the Harvard Crimson she was fired for voicing concern to then-university president Larry Summers' chief of staff about the money manager's risky use of derivatives the traders didn't understand.

The episode dates back to 2002, when analyst Iris Mack, whose website identifies her as the second African American woman to earn a Harvard PhD. in applied math (and someone who likes primary colors) joined the much-venerated Harvard Management Company, which invests the university's then $18 billion endowment, to find what she termed a "frightening" state of affairs.

Joseph Eugene Stiglitz from Wikipedia bio is an American economist and a professor at Columbia University. He is a recipient of the John Bates Clark Medal (1979) and the Nobel Memorial Prize in Economic Sciences (2001). He is also the former Senior Vice President and Chief Economist of the World Bank. He is known for his critical view of the management of globalization, free-market economists (whom he calls "free market fundamentalists") and some international institutions like the International Monetary Fund and the World Bank. In 2000, Stiglitz founded the Initiative for Policy Dialogue (IPD), a think tank on international development based at Columbia University. Since 2001, he has been a member of the Columbia faculty, and has held the rank of University Professor since 2003. He also chairs the University of Manchester's Brooks World Poverty Institute and is a member of the Pontifical Academy of Social Sciences

From Joseph Stiglitz:

Obama Has Confused Saving the Banks with Saving the Bankers

We get reaction to President Obama’s speech from Nobel economics laureate and former World Bank chief economist, Joseph Stiglitz. Stiglitz says the Obama administration has failed to address the structural and regulatory flaws at the heart of the financial crisis that stand in the way of economic recovery.

http://www.democracynow.org/2009/2/25/stieglitz

Paul Volcker

See-

Paul Volcker Chafes at Panel Delay, Clashes With Summers
By Robert Schmidt and Julianna Goldman

Feb. 5 (Bloomberg) -- Paul Volcker has grown increasingly frustrated over delays in setting up the economic advisory group President Barack Obama picked the former Federal Reserve chairman to lead, people familiar with the matter said.

Volcker, 81, blames Obama’s National Economic Council Director Lawrence Summers for slowing down the effort to organize the panel of outside advisers, the people said. Summers isn’t regularly inviting Volcker to White House meetings and hasn’t shown interest in collaborating on policy or sharing potential solutions to the economic crisis, they said.

(...)

Outsider’s Disadvantage

The contretemps shows the difficulties Volcker, perhaps the world’s most respected economist, may encounter as an outside adviser charged with providing policy alternatives to the president, said William Silber, a finance professor at New York University’s business school.

Volcker “is not in the White House and he doesn’t have a bureaucracy to command,” Silber said. “It puts him at a disadvantage.”

After testifying at a congressional hearing yesterday, Volcker declined to respond to questions. His office said he doesn’t grant interviews.

Summers, in an interview, played down any conflict.

Elizabeth Warren, chief watchdog of America's $700bn bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration's approach to saving the financial system from collapse.

Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program (Tarp), is also set to call for shareholders in those institutions to be "wiped out". "It is crucial for these things to happen," she said. "Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade." She declined to give more detail but confirmed that she would refer to insurance group AIG, which has received $173bn in bailout money, and banking giant Citigroup, which has had $45bn in funds and more than $316bn of loan guarantees.

Warren also believes there are "dangers inherent" in the approach taken by treasury secretary Tim Geithner, who she says has offered "open-ended subsidies" to some of the world's biggest financial institutions without adequately weighing potential pitfalls. "We want to ensure that the treasury gives the public an alternative approach," she said, adding that she was worried that banks would not recover while they were being fed subsidies. "When are they going to say, enough?" she said.

She said she did not want to be too hard on Geithner but that he must address the issues in the report. "The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous."

http://www.guardian.co.uk/business/2009/apr/05/useconomy-regulators

Barry Ritholtz

More Info:
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x5389801

[MarjorieG]

1. We love the choices that want to blow up the system. Not heard how we weather this and build back up

[girl gone mad]

3. Which one of those people wants to "blow up the system"?

How about if you provide some specifics to back up that odd assertion.

[MarjorieG]

4. You mostly want to stick it to Wall St, for instance, which I can sympathize. Just saying that

nationalizing the banks, when we haven't determined bottom, is like adding dynamite with worse repercussions. We may have to, but more would have to be proven about the only course to those unwilling to consider.

I don't want to debate legit anger here.

[girl gone mad]

5. Sticking it to Wall Street is not "blowing up the system".

I would like for INSOLVENT banks to be nationalized rather than zombified. If there is a better solution than the one endorsed by Stiglitz, Krugman, Roubini, Taleb, Sachs, Johnson, etc., I would like to read about it.

I think doing things like keeping incompetent management in place at failed firms, using public money to pay out counterparties at face value on CDS contracts that they KNEW were high-risk, allowing employees to loot bailed out companies with phony "retention" bonuses and keeping bad banks alive through bailout schemes that amount to highway robbery will do much more damage to our system in the long term than nationalizing a couple of big banks and forcing bondholders and counterparties to take a hit will. We have no perfect options at this point, just bad and worse ones.

The people who are benefiting from our current course of action are the ones who blew up the system. I think your criticisms are misplaced.

[MarjorieG]

6. Not saying what is legit, but what is possible now.

[IrateCitizen]

12. Do you really understand what "nationalization" is about?

"Nationalization" isn't even really the right word to use here -- it's more of a "receivership."

Step one in any receivership would be for government auditors to come in and assess what the "bottom" really is. They would sort through the bank balance sheets and determine which entities are either solvent or reasonably capable of becoming so, and which banks are insolvent. Recent government moves to basically gut mark-to-market accounting rules, not to mention the endless series of bailouts, have completely hamstrung us in that effort. In fact, the way things are going it is possible we may NEVER know how bad the banks' balance sheets are.

Step two would consist of the following for "bad banks": shareholders are cleaned out, senior management is summarily fired, and the bank's "workable" divisions are sold off. Any salvagable banks would similarily see shareholders take the hit -- and if the govt. was smart they would demand the resignation letters of all management up front, keeping said letters as collateral to ensure their cooperation throughout the process.

This isn't a question about anger. It's a question about facing up to the REALITY of our serious problems in the banking system and taking meaningful steps to address those problems realistically. Your approach is akin to continuing to paper over the losses, allowing the banks to continue on in a zombie-like condition, eating billions more in taxpayer subsidy -- much as Japan did during its "lost decade."

[MarjorieG]

13. Thanks for the explanation. Appreciated more than name-calling. Married 40 years to a business

reporter/editor having covered a lot of cycles, Samuelson a hero, after having gone to Columbia on an economics fellowship. This has been boring dinner table chat for a while.

[MarjorieG]

14. Didn't really answer your valid points. I'm just arguing on timing, and trying to finesse, with

upsides if we do. If those with money, the horrible money guys act in partnership, we can recoup and price. If not, and behavior as bad, we have no choice.

Just a lot to do at once and try to have an Obama progressive agenda budget go through. Politically untenable, no consenus, which I feel important, and I refuse to devote entire term to again fix GOP mess.

[GoesTo11]

2. With the economy at a crossroads

Robert Johnson is a particularly inspired choice.

[glitch]

7. This roster would have made me so happy.

I'd be an obamabot!

[progressoid]

8. Oh you...

You're nothing but a Repig/troll/hater aren't you!

K/R!

[dreamnightwind]

9. K & R from me...

I waited awhile to get a feel for where Obama's financial remedies were heading, and after waiting, I'm now certain that I don't like it one bit. Deep capture indeed.

It's time to start voicing our opinions and encouraging alternatives, loudly. Even the Europeans aren't buying what Geithner and Summers are peddling.

Re-regulate. Then regulate some more. When we're done with that, we can start putting some regulations in place. After that I suggest we impose some regulation.

Don't honor derivative obligations, at least not at full value. It's absurd to do so.

Too big to fail = too big to exist. Bust up the large financials.

Financial systems should be safe and boring, not a place for sexy innovation. Put Glass-Steagall back, or at least separate banks from investment houses again.

These kind of actions would put us back on the right path.

Now, about the money, where is it? It didn't disappear. We need to seriously explore taking back the ill-gotten gains, whether they were gained legally or not. The financial lobbyists were literally writing the regulatory laws, so of course most of it was legal. This would require international cooperation, but in this climate it may well be possible. Europe and the IMF already complain that the top-heaviness of US wealth creates an unstable and unsustainable situation. I think a courageous leader could get the money back, or at least a large portion of it.

[Danascot]

10. Two good articles supporting a rational approach to the bank problem

A Bank Bailout That Works

By Joseph E. Stiglitz

The news that even Alan Greenspan and Senator Chris Dodd suggest that bank nationalization may be necessary shows how desperate the situation has become. It has been obvious for some time that a government takeover of our banking system–perhaps along the lines of what Norway and Sweden did in the ’90s–is the only solution. It should be done, and done quickly, before even more bailout money is wasted.

The problem with America’s banks is not just one of liquidity. Years of reckless behavior, including bad lending and gambling with derivatives, have left them, in effect, bankrupt. If our government were playing by the rules–which require shutting down banks with inadequate capital–many, if not most, banks would go out of business. But because faulty accounting practices don’t force banks to mark down all their assets to current market prices, they may nominally meet capital requirements–at least for a while.

http://www.thenation.com/doc/20090323/stiglitz?rel=hp_picks

The Nationalization Option

By Harold Meyerson

You might think that having anted up $173 billion of our own money, we taxpayers would have some leverage at AIG, now that we own 80 percent of the shares. You might think that when chief executive Edward Liddy, a holdover appointee of Hank Paulson’s, told Treasury Secretary Tim Geithner that he had just mailed $165 million of our money as bonuses to the geniuses at the firm’s financial products unit — who probably did more on a per-banker basis to destroy global capitalism than any other kindred group — that Geithner, upon hearing this news, would have responded, “Liddy, you’re fired.”

But Geithner’s indulgence of bankers’ indulgences is fast becoming the Obama administration’s Achilles’ heel. The AIG debacle is the latest in a series of bewildering Geithner decisions that threaten to undermine the administration’s efforts to restart the economy. So long as it’s Be Kind to Bankers Week at Treasury — and we’ve had eight straight such weeks since the president was inaugurated — American banking, and the economy it is supposed to serve, will remain paralyzed. The Geithner plan to restart the banks provides huge taxpayer subsidies to hedge funds, investment banks and private equity companies to buy the banks’ toxic assets without really having to assume the risk. That’s right — the same Wall Street wizards who got us into this mess, using the same securitization techniques that built mountains of debt within a shadow financial system that remains unregulated, are the saviors whom Geithner has anointed to extricate us — with our capital, not theirs — from the mess that they created.

A more plausible solution would be for the government to assume control of those banks that are insolvent, as it routinely does when banks go under. It could then install new management, wipe out the shareholders, take the devalued assets off the banks’ books, restart lending and restore the banks to private control at a modest profit for the taxpayers. There may be reasons that Geithner’s plan makes more sense than this one, but if they exist, Geithner has failed to explain them.

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/17/AR2009031702939.html

[progressoid]

11. Morning K/R