Friday, July 29, 2011

the other shoe

(notes taken from a talk by gretchen morgenson july 24 of this year)

this is one of the very finest books on the 2008 wall street crisis and it is very unsettling.

gretchen is assistant business and financial editor of the new york times, and writes a column for them.

she has covered world financial markets for the times since 1998 and is a winner for the pulitzer prize in 2002 for her coverage of wall street.

the more light that is shone on the 2008 wall street debacle, the better.
the book is a real eyeopener.
this book names names and gives much new detail.

one of the major protagonists in this book is former fannie mae ceo, james johnson.
john was ceo of the mortgage finance company set up in 1938 to help depression era borrowers get financing for homes.
fannie mae worked well for a long long time until mr. johnson took over the reins in 1991.
he began to turn it into a political animal.
under johnson, it became a hardcore political machine.
it gained friends in congress, effectively neutralizing its regulator.

the massive intimidating lobbying force coming out of these agencies is unsettling, as well as the immense amounts of money these heads were able to accumulate.
this was a quasi- government enterprise.   it had public shareholders to satisfy, and was a growth stock for many years.
the fannie mae trump card was its government backing.
it could borrow at far lower rates than other mortgage companies.
the company paid no local taxes.
the company didn't have to make sec filings.
it had all of these percs.

the individuals who ran the company juiced it up, rolled the balance sheet and kept an incredible amount of the money for themselves.
democratic congress from massachusetts, barney frank, was one of fannie maes staunchest, most reliable, and most vocal  supporters.
in the early 1990s, frank insisted that fannie mae hire his then boyfriend fresh out of tufts,  at the time congress was regulating it.
fannie mae made huge contributions to a boston charity founded and run by franks mother.
when asked if hiring his roomie might  conflict with his oversight of fannie mae, frank said, "of course not."

robert rubin, former ceo of goldman sachs, secretary of treasury for the mid to late 90s, was a major operative in the push to eliminate glass-steagall in 1999, which had broad bipartison support, and was signed into law in november by then president clinton.

this is one of the finest exhibits ever that the u.s. has the finest government money can buy.

right after that, robert rubin joined citibank as ice chairman and rubin earned another $125 million.
is it just coincidence that citibank was one of the top lobbying forces to repeal glass-steagall?
the revolving door between government and wall street firms has never been quicker or more transparent.

this is so disturbing to everyday people and to main street.

the regulatory failures at this time then moved right into cushy corporate jobs at places they supposedly were regulating.

3 years into this crisis, the public wonders about accountability.
lehman was taken into conservatorship in september 2008.
fannie mae and freddie mac were taken into conservatorship on labor day of 2008.
the public is into these companies for $154 billion.
where is the accountability? people want to know.

accountability is AWOL.

only one relatively high level banking official has been sentenced to prison.

he was a mortgage lender in a firm no one ever heard of. no one has laid a hand on the biggies.

that is absolutely wrong.
there are 2 sets of rules in america.
there are rules that you and i and good sincere honest folk on main street must abide by.

then there are rules for big politicially connected people and big bankers.

they aren't held accountibile.

there is no penalty for failure or ineptness in washington.
the same people who wrote the laws allowing all this, are writing the reform legislation, with the help of the big powerful business lobbies.

dodd-frank bank legislation, about a year old, is a woefully inadequate response to this problem.

dodd-frank did not reign in the too big to fail banks.
we learned in 2008 that big politically connected banks and business would not be allowed to go bankrupt.

now, instead of just 2 of those companies, (fannie and freddie), we now have about 10 of them.
the very large banks, jp morgan chase, citibank, bank of american, wells fargo, goldman=they are all now considered too big to fail, and are bigger than they were in years leading to the crisis AND ARE STILL GROWING.

we had failure during the crisis to reign in the banks, but afterwards, we now have legislation to 'protect taxpayers'  and it didn't touch the biggest problem.

if i'm too big to fail, i can go out and take huge business gambles.  if i win, i get a huge bonus; if i lose it's your problem.
"i'm too big to fail.

turn it over to the taxpayer."
this is called privatizing gain, but socializing losses.

that is a recipe for disaster, and mark my words, it's going to happen again.
holding innocent parties responsible for things they don't control is just wrong.

they call that stabilizing the financial markets.

what will happen to freddie and fannie.  our losses so far are $154 billion and still counting.
will congress get a handle on them?
don't make me laugh.

when you hear the treasury dept.say they will make a profit on TARP and bailouts, we have to wait and see how fannie and freddie turn out.
so far, they get failing grades.


that leaves me out.


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