(Please welcome author Nomi Prins in the comments — jh)
Nomi Prins used to work for Bear Sterns and Goldman Sachs. She left all that to write about the world of finance. She’s currently writing a book on the financial crisis with my favorite title of the year: It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street.
She writes about Timothy Geithner’s new Public-Private Investment Plan in Mother Jones, and says she thinks it’s actually worse now than when Paulsen first offered up a similar plan last year:
I’ve never been a fan of any toxic asset purchase plan (nor of the capital injection through stock purchase plans). Randomly buying a bunch of heavily layered, heavily leveraged securities and expecting them to be profitable some day has never made sense to me, especially when nothing is being done to bolster the underlying collateral. The White House and Treasury Department are throwing money at the banking and finance industry, while simultaneously doing little about the loans and borrowers at the bottom of the crisis—not to mention the very risky and overleveraged structure of the banking system itself.
The administration is caught up in crafting big plans to solve the problems of big banks. Instead, it should be dissecting the system into transparent, quantifiable, and understandable parts—and then dealing with those elements that can and should be assisted. Geithner ought to jettison the too-big-to-fail nonsense and keep it simple: Break up the banks into their commercial and speculative parts, and separate the assets along similar lines. Let the speculative parts die, and tend to the rest. As it stands, the present solution—propping up the entire system in a complex, highly leveraged manner that depends on the kindness of the culprits that caused this mess—is a colossally expensive exercise in bipartisan stupidity.
Nomi has long insisted that the real problem is a lack of transparency within the system: "No one has a clue about the true nature of Citigroup’s books or health, or AIG’s. Nor of Bank of America’s or Wells Fargo’s, or for that matter, JPM Chase’s." She thinks we need to bring back "a modern version of the bipartisan Glass-Steagal Act of 1933," and start chopping up these "too big to fail" institutions into manageable pieces.
A lot of people expected that the anger over the AIG bonuses would give Timothy Geithner the opportunity to demand executive compensation to be tied to long-term performance of the company, but when asked about today Geithner punted. It seems that those who are hoping that Geithner will do anything more than prop up a badly broken system are destined to be disappointed.




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Welcome, Nomi. Thanks so much for being here today.
Did you happen to catch Geithner’s testimony today? Wondered what you thought.
Thank you, Jane! I’m getting a lot out of this series.
Thank you for coming, Nomi.
What’s the easiest, shortest comeback for
a) well, lots of people just shouldn’t have had those loans
and
b) well, Congress MADE the banks make those loans.
I have a good friend who often expresses a) along with “well, I’M not getting any help and I’m PAYING my mortgage. Nobody MADE these borrowers sign the paperwork…”
I’m always flabbergasted by b). I’m pretty sure they’re talking about the CRA, but isn’t that from the ’70s? Didn’t it actually pretty much WORK for 30+ years?!
FunnyDiva
Thanks so much for inviting me on, Jane.
Yes, I watched the testimony this morning. I thought that Geithner managed to deflect a lot of details, by saying that he’d go over the details later. We certainly need a better regulatory mechanism. But, that requires standing up to the current structure of the entire financial system, he didn’t go there.
welcome,it takes a pillage….lol
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Given the resumes of those charged with fixing this mess, is there any chance it will get fixed?
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will they?…poor sunshine,and disenfect this ,what amounts to a mutating VIRUS on the american taxpayer
Things worked, before Wall Street realized that it had no better way to make money, after the Enron/WorldCom scandals which followed a ton of deregulation in the energy and telecom sectors, mixed with a lot of bloating of earnings and fraud. The solution? Higher risk loans. Wall Street could use these to stuff into all manners of other assets and sell them, for billions of dollars worth of fees. By 2006, after four years of this, the Street posted its highest profits ever – and along with them, the highest bonuses. What fell afterward, is what we’re picking up now. Not the loans at the borrower level, as much as all the assets and leverage Wall Street concocted using them as a seed.
since liquidity seems to be the problem most programs are trying to address, I have not see one credible reason why funds were given to these institutions rather then simply creating a pool of money “to be used for loans”, to which they would earn a commision
Is it just me, or is this “well…we’ll work out the details later, just trust us” crap getting really, really old? It’s widely known by now that this crisis has been a-brewin’ since loooooong before Jan 20th, or even Nov 4th of ‘08. And nobody in any position of authority has done any detailed problem-solving? WTF?
And I, too, love the title “It Takes a Pillage.” Reminds me of a song in Hello Dolly.
FunnyDiva
ya beat me to the punch
The argument about the CRA (Maxine Waters Made Me Do It) is ridiculous. There were people who were pushing to block predatory lending laws and make it easier to write bad mortgages, but that would be people in the Bush administration. See Eliot Spitzer on the subject:
http://www.washingtonpost.com/…..inionsbox1
They adopted the mantra that this was to get money into minority communities, but it was horseshit. Now they’re blaming those communities for not having “better judgment.” It’s the Chris Dodd/Timothy Geithner battle writ large.
I wish I could say that the people in public office, would set aside their private relationships and consider the good of the country, which would entail a much harsher treatment of the financial system and its leaders. But, that’s not reality. The ties that bind the two W’s – Washington and Wall Street are too tight. The best we can do is hope that some of the agencies that weren’t dismantled by years of deregulation, like the FDIC, consolidate their role in helping to fix the situation.
I totally love your handle, btw, cosa!
Hi Perris, sadly, all pups.
FunnyD
Thanks, that’s how I see it, too.
Blame the victim with the least recourse writ large.
But, isn’t that the very core of modern Conservatism?
FunnyD
Thanks. Yes. It does get old. It makes me want to jump up and shake them – both Geithner and some of the Congress people. Even when fairly good questions were asked – like, whether this entire ‘too big to fail thing’ is a result of anti-trust laws gone unnoticed, Geithner punted – talked about how we do have deposit percentage constraints…which has NOTHING to do with the size of these institutions – if Citigroup just dealt with deposits and loans – like it would have under the Glass-Steagal of 1933 legislation – we wouldn’t be in this mess.
PS, Jane, you were wonderful on Rachel Maddow the other night. Hope to see you there often.
FunnyD
We’re actually working on a chart of all the money given to members of the House Financial Services Committee by the industries it regulates. And then a schedule of all the lobbyists they bring in to testify whenever they decide to pass a law.
Don’t hear so much from the waitresses and truck drivers who have to pick up the tab when it all goes horribly wrong.
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So, no, then.
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Though thoroughly discredited, the CRA meme is still very active content in the wingnut emails that fly around in the ether. Knocking them down is almost a full-time job.
if they could make big money cloning cockaroaches,it would be the latest IPO anything for profits sake,anything
The idea of blaming the borrowers is very convenient, for those that want to leave the current financial structure in tact. Here are the numbers: the subprime mortgage market in TOTAL consists of $1.4 trillion worth of loans. If ALL of them defaulted, which they haven’t. it would not in any way come near the $12 trillion worth of money the federal government has at risk on ‘fixing’ things. The reason for that staggering amount, and the tremendous financial crisis, is the leverage Wall Street put onto the system, not the mortgages themselves.
The prognosis isn’t good.
That bears repeating, IMO. Over and over and over.
Someone has a great Oxdown diary title along the lines of “when Wall St had nothing to invest in, they decided to invest in nothing.”
How do we get Glass-Steagal back? How do we support the smaller banks that are just dealing with deposits and loans the old-fashioned way?
FunnyD
Something that’s easy to digest, easy to send to the wingnutosphere? Could be a very powerful tool, IMO.
too big to fail,means all rules be damed,and failure will happen,because,they cant lose
I couldn’t agree more. Why can’t we use essentially a reverse shock doctrine to achieve just that? Shouldn’t we use how colossally bad the situation is now to slap the strongest regulation possible back onto the system? After all, they just showed us how bad it gets without regulation.
Yeah but I don’t think that what it reveals will make people happy — biggest recipients are Democrats.
Nomi, welcome. digg is open.
The finance industry, by virtue of extorting more profit than any other industry is very adept at putting their money where their deregulation requests are. If you look at the years where key legislation was passed to deregulate the industry, their are significant spikes in funding.
Ooooh! Can’t wait to see that. It should have its own button in the top banner of the homepage!
That’s my pet peeve c) well…everybody has a lobby whether they know it or not.
True on its face, but are you really arguing that Some Lobbyists are NOT More Equal than Others and that MONEY is NOT the key to their influence?
d) well, yeah, but we voters need to change the system.
Can you tell I got my chain yanked but good at a party this weekend? By a walking, beer-drinking talking point jukebox masquerading as a human.
FunnyD
“…the subprime mortgage market in TOTAL consists of $1.4 trillion worth of loans. If ALL of them defaulted, which they haven’t. it would not in any way come near the $12 trillion worth of money the federal government has at risk on ‘fixing’ things…”
That’s very succinct. Is there a source that can be referenced in case someone attempts to refute it? Given the attention spans we’re dealing with, shorter is better, obviously. Thanks.
Love the above sentence. That’s the way I’ve felt since this crisis began to unfold, but I don’t have the expertise in economics to back up my gut feelings. But “too big to fail” is just simply “too big” in my book.
Thanks for writing this book.
and they can’t lose because they ARE the government and their losses will be covered by Treasury.
Feh.
FunnyD
so be it,if they are the cancer,we must know its DNA to treat it
That’s just fine with me. Anyone who’s feeding in this cesspool needs to be called out on it. “Here, put the pin back in this grenade…”
I’m assuming you’ve seen that Citi and BofA is already gaming Geithner’s system?
http://www.nakedcapitalism.com…..ivate.html
The fact that the bankers get tons of money in all these deals seems to be a feature, not a bug.
I am more worried about who they have cocktails with.
That would make an interesting research project — is there any existing data on that?
*groan*
Nomi: What is your take on how credit unions and smaller local / regional banks fit into this picture?
we will pick up the tab,every freakin time
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You can blame the borrowers all you want, but they’re the suckers in this. The real problem with them is not so much among the formerly-redlined, but among the new generation of average-to-upscale homeowners that saw their own homes as speculative investments and sources of capital or spree-money, rather than as their last resort, their unassailable redoubt, their family’s bedrock. That banks/ brokers/ insurers et al encouraged the resulting liquefaction of our economy’s bedrock is criminal and should be cracked down on immediately.
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I think we all need to march with signs blaring Bring Glass Steagal Back in front of the Senate and the Treasury Dept (and maybe the Fed, too) (it was a bi-partisan fairly decisive vote of 90-8 that repealed it in 1999). There were many little gems in the repealing legislation (called the Financial Modernization Act of 1999 (or Gramm-Leach-Bliley Act)) beyond allowing commercial banks, like Citi, to do whatever they wanted, and insurance companies and banks to merge, that should be examined.
Good point.
Sunshine. If it makes us unhappy enough to kick some big-D a$$es, so much the better. A footnote pointing out the timespan of the donations and the changing political winds after the 2006 election should deal with any “oh, lookeeee the Dems are WORSE!”
I agree…I wasn’t prepared to be happy about the results. Just really happy that you, et al, have put the information together.
FunnyD
Ack! I just checked and see that the book doesn’t come out until September. I don’t know if I can wait that long. I hope we’re not down to a barter system based on nuts and berries by then…
of course they are….that’s why the Geithner plan is so incredibly stupid. These banks basically get their old clients, who wouldn’t go near their assets before, to come back on the government’s dime.
This is a great example of the power of describing the problem with relative numbers.
Relative weights of problems are clearest in context.
$1.4 Trillion is a whole lot of money (as is the amount of AIG executive bonuses).
But these numbers distract from the larger amounts being siphoned off under our noses.
Nomi, thanks again for the chat.
Can you speak to the relationship between the loan tapes, which
Prof. Galbraith understandably wants to audit, and the different tranches of securities. Is it even possible to trace a single piece of residential or commercial real estate through all the different tranches of different securities in which it might exist?
Does the U.S. Government/or taxpayers, as a result of loans to the banks and preferred stock, have permissible purpose under the Fair Credit Reporting Act, to view or audit the loan tapes?
The fact that this information is being compiled is (hopefully) sufficient to put everyone on the hill on notice that they’re going to be tagged if they continue with their rank whoring.
ugh…the bad guys keep winning and winning, almost like the game is fixed
it takes a lot to laugh
it takes a train to cry
for the most part, the smaller banks and credit unions that leveraged their books less, have and will come out better. though the ones in areas most hit by the economic declines will suffer the most, and have. Compare to the major banks, who created their own mess by leveraging their customer deposits and loans to the hilt. Credit unions, tended not to act as irresponsibly.
Thanks for coming Nomi.
In your view, should CDS’s be banned (or at least banned if federally insured money is in any way involved (as for example through a deposit in or loan from a federal insured bank or activity on a securities exchange which has members or traders trading SIPC insured assets))?
Nomi, with your experience in the investment banks, do you know of anything that gets the attention of these guys? Their absolute failure to understand the damage they have done and to take ownership of it is maddening. I think they would start to pay some sort of attention if we stripped them of their assets, but they probably would still fail to understand why we would do that or to connect it with what they have done. Is there anything that will cut through their belief that they are smarter and more entitled than us peons?
Nomi: This is probably a stupid question, but do you see anything at all that suggests that Obama might jettison Geithner (and hopefully Summers, as well) anytime down the road? Or is he just a smooth-talking Bush in terms of his stubbornness? What’s your take on this?
seconded. That’s what I was trying to get at with my suggestion of a footnote. Biggest recipients of finance industry $$$ are Dems right NOW, and I suspect the spike started when they knew the R’s were sunk after ‘06, maybe a bit before. IOW, I’m sure the party in power gets the biggest contributions. As do the chairs and members of the most powerful committees.
I like how you express it, Nomi: they’re good at putting their lobbying money where their de-regulation requests (demands, more like) are.
FunnyD
i prefer refrencing it to OUR DIME.the congresscritters get to spend OUR hard earned dollars
great question. even though loans are shuffled from bank to bank, and used as collateral for sometimes multiple different securities, there are records of their characteristics. When an investment bank or commercial-investment bank goes to securitize a set of loans, there’s a selection process – which entails picking loans that meet the criteria of what will be the new asset – down to zip code and street address and amount of the loan and years outstanding. so it is possible to track them, and find them, and work with them. the idea that it’s too difficult is a myth
yes Evan Bayh,Bayh,were talking to you! and your dear MRS.
so, although not as pithy, the other side of the sign should be “Repeal Gramm-Leach-Bliley!”
FunnyD
forgot about that
From Matt Taibbi’s piece:
“The Democrats, tired of getting slaughtered in the fundraising arena by Republicans, decided to throw off their old reliance on unions and interest groups and become more “business-friendly.” Wall Street responded by flooding Washington with money, buying allies in both parties. In the 10-year period beginning in 1998, financial companies spent $1.7 billion on federal campaign contributions and another $3.4 billion on lobbyists. They quickly got what they paid for.”
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So, you think having to look your depositors right in the eye maybe makes a difference? Part of this “too-big-to-fail” thing is that these megabanks have no physical connection to the people they are supposed to be serving: Yet another huge problem with the corporatist drive to “consolidation.” They also don’t know their local markets & values, and they don’t listen to the “little people” who do know them. They’ve been selling blind pigs in pokes they’ve never seen, and getting rich doing it. It’s a casino, not a financial system. Unfortunately, what happens on Wall St doesn’t stay on Wall St.
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that is eggs selent news
credit default swaps should not be allowed in the kind of chains they have evolved into, where you can have like 100 different traders throw a swap around, and none of them has any relationship to the underlying loan or bond.
there are $58 trillion worth of what’s called notional amounts of credit default swaps. there are about $2 trillion of gross value. think of it like car insurance. that means the credit default system only has the capacity to absorb $2 trillion of loss, when it could technically lose all $58 million.
problem with regulating what geithner called ‘the standardized derivatives’ is that many of these swaps arrangement are so convoluted as to not be considered standard. and in geithner land, the most complicated ones, get the biggest regulatory pass.
yeah, – or Financial Modernization Sucks
Well here’s a good one — AIG’s Chief of Risk Management still on the job.
http://www.businessinsider.com…..yed-2009-3
The minute you say ‘too big to fail’ – if you’re responsible say for regulating the system or protecting taxpayers – you should say – maybe they should be smaller. The philosophy behind greater regulation for ‘too big to fail’ companies implies the acceptance of ‘too big’. Greater regulation is certainly needed. But, rendering the industry less top-heavy would promote financial stability in a much more meaningful way.
this was in effect,a liscence to steal,pillage plunder,whatever
What did you think of Geithner’s defense of naked CDSs and the absence of any mention by anyone of Glass-Steagall?
Parenthetically, do you think that Goldman is anything other than the investment bank it has always been? I don’t see the shift to a bank holding company having changed it in any significant way.
BTW, Nomi’s book doesn’t come out until September but you can pre-order. Looking forward to having her on Book Salon.
http://www.amazon.com/Takes-Pi…..038;sr=1-4
Risk, Schmisk.
Well, the losses that happen on Wall St don’t stay on Wall St. The gains and profits are a very different story. A story that was always justified by “well, we’re taking all these risks, so we should get all the goodies.” Conveniently leaving out the bit about having no intention to lose even if the risks came back to (try to) bite them.
FunnyD.
Front:
“Financial Modernization” SUCKS
Reverse:
Repeal Gramm-Leach-Bliley
Bring Back Glass-Steagal
Dang, even that is wonkish. How do we work in something about financial welfare queens?
FunnyD
Thanks.
Concerning the convoluted arrangements, what level of education and compensation do you think is required for a bank examiner/SEC investigator competent to understand the CDS pricing mechanism and risks involved?
Should CDO’s with tranches be banned forcing a return to standard credit analysis (which return might also be fostered by a CDS ban); that is, if you put up 5% of the money for a pool of mortgages (or loans) you get back 5% of the payments to the pool?
its maddening,thinking last month almost 3/4 of a million prolly fit people were pink slipped…too dumb to fail i guess
I thought the reason things aren’t transparent is that if we know how bad the books are, there would be runs on the banks.
I was thinking much the same. The phrase ‘Dead Banks Walking,’ came to mind since some of the larger ones have been labelled zombies. If they expect only 60%, that translates into a huge book loss. However, I suspect the government will see that they do not run out of cash which is what is most important. I remember when banks were not allowed to operate in all the states – not that long ago. The distrust of banks that the generation that lived through the great depression seems warranted.
That is sad. And, even sadder that the government is his bad credit bets by paying them off. Here’s what happens in these firms. The people are in charge of risk management are the ones most ignored by all the power-elites, unless they are helping to increase risk which is considered a portend of profits, until things screw up. If things are going well – and AIG was making tons of money through 2006, as were its bigger partners like Goldman Sachs – risk managers get ignored or sing from the same songsheet as the most profitable execs in the firm. If things go badly, they are the targets. Keeping him around now, almost insures that once they get rid of him, they’ll be able to say that now their risk management practices will be so much more stringent.
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Yeah. I don’t think we really need “rock stars” in every industry, either. I’ll settle for a fusty old banker who lives on my block and drives a car like mine. If I have a problem, I can always go talk to him or her. If he or she has a problem, everybody’s going to know it.
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yup
It boggles the mind that just paying off the underlying securities wouldn’t work.
Of course there is the Alt-A, and commercial loan bubbles still to hit, but that’s still less than $12T.
Thank you.
As a short term strategy to block Geithner’s “cash for trash,” might any iteration of this kind of clunky idea be feasible? I apologize in advance if this just reveals more of my ignorance about the overall system.
This is some reporting done on a residential address in Milwaukee, 3200 North 34th Street, by the local daily, the Milwaukee Journal Sentinel.
House of pain
Caught up in a suspicious deal enabled by lax lending standards, a man now owns a house he can’t afford and never wanted
This one property, is rife with fraud at multiple levels and it is not worth even pennies on the dollar. My guess is that the software the hedge funds use to audit loan tapes, prevent them from ever even considering worthless properties like these and the tranches with which they are associated. They leave them for the taxpayer, so they skim the gravy.
Would it make any sense for state sub groups of the “strange bedfellows” group, such as Jane is trying to corral, to try and assemble a list of bad addresses such as 3200 North 34th Street in Milwaukee by and then demand of federal representatives from the state that these properties and the securities with which they are associated, not receive any funds from Geithner’s “cash for trash.”
I don’t see this as a good long term solution, but I thought it might make Wrongway Geithner and the rest of his “too close to Goldman Sachs” buddies work a little harder to swindle us.
IMHO, a better long range solution is to find some reliable software that evaluates properties on the loan tapes.
yeah, it’s kind of ponzi-esque. you keep taking in premiums, and then passing the risk to another firm. the only firm that’s screwed is the one at the end of the chain. everyone else is making money upfront
Cool. Let’s have a CCC of auditors’ assistants to screen everything (the C-CPA-C). I’m sure there are many of us well-educated but painfully underemployed who could quickly get up to speed, even without a background in finance.
FunnyD
yaeah,remember the maestro?…i call him MAESTRO oF MERDE
Exactly. And, the reason nothing will change, is that no one in Washington in power is pushing to make that happen.
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Yeah, except the deinzens of Wall St are not the ones taking the risks: We are. And we’re insuring them against their own losses, if any. And now we’re bailing them out, bonuses and all. So, whatever happened to risk being proportionate to return? It doesn’t apply when they lose? And where’s our return?
What we have here is socialism, all right: National Socialism. Crony capitalism financed by public moneys, and no end in sight. Only a complete catastrophic collapse may change that. But there’s Nazi’s already all set up to lead the mob if that happens, while the Left remains an idea only in this country.
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FUNNY D!!!
The best solution is to end-run this public-private partnership idea, take that information that Jane and others are looking to group, and inject capital directly into the loans, no leverage, just pure principal paydown (the banks would hate this, even though the better loan qualities that would result would help them pull off the much talked about idea of loosening credit.
Until the bank he works for gets bought up by the Wall Streeters
Looking at the 4 arms of the Obama plan: the $787 billion stimulus, the $75 billion aid to homeowners, the $2 trillion or so of PPIP and TALF in the Geithner plan, and the Geithner re-regulation plan, how do you think it will all turn out?
My view is that we have already entered into a depression, and aside from a bump next year, we are staying there (unless something changes radically).
“Would it make any sense for a “strange bedfellows” group, such as Jane is trying to corral, to try and assemble a list of bad addresses such as these by state and then demand of city, county, state, and federal representatives that these properties and the securities that they are associated, with not receive any funds from Geithner’s “cash for trash.”
I like the way you think. To do it large scale, you’d need access to some good databases. Are you aware of such information that is readily available? There has to be a way to crack this problem. If the data is accessible, running the tests would be a relatively simple thing to do.
THE TAXPAYER is the rube,the mark,the one standing seatless after the musical chairs,or left to pay the dinner bill,when all the biggest eaters head to the lavatory
I’d like to hear your take on one aspect of the Geithner’s latest version of the Paulsen plan, Leveraged Cash for Trash or PPIP. The bondholders and other subordinated debt holders would get taken to the cleaners in a bankruptcy. So their best strategy is to collude and get the bids as high as possible, even above where the banks have marked them. Indeed PIMCo wrote the plan. Is there any way FDIC or treasury can prevent this?
Also- one problem with Credit Default Swaps is they leap to the top of the bankruptcy heap. Any chance we could get Congress to change this? It seems to me one of the biggest causes of systemic risk to have them where they are perched now. Best case is to see them go away completely, but Timmy no likee.
Paying off the securities would have worked, had the issue not been so clouded former Treasury Secretary Hank Paulson and the rest of Wall Street. Toxic assets are only complicated because they are being posed as such. Yes, they are layer, and those layers have complications. But, beneath all the layers are the home loans. If we took $12 trillion, we could pay off ALL the mortgage loans in the country and have $2 trill to spare for rentals, or better subsidized homes. People would have less debt, more to save, more financial security.
Beautiful.
So let’s say you had Geithner before your committee, and unlimited time so he couldn’t dance away from your statement: what would his reply be, based on what you can tell from his philosophy? What objections would he raise?
And welcome, Nomi.
What do you think of forcing the banks to take a cramdown/haircut of 10-20% along with the straight federally paid principal paydown?
I think we have to look at the public stimulus, and the bank bailout separately. ANd, when I say bank bailout, I’m referring to $12 trillion worth of loans, federal reserve facilities, extra credit lines to the FDIC to keep up, and everything else (I have an excel spreadsheet of the breakdown I’m putting in the book if anyone wants to see it)
The public stimulus is too small, the bank bailout is too large, plus the financial system is not really being reined in, despite all the talk of regulatory reform. so, I don’t see it getting better any time soon. I see it getting much worse.
Huh – you mean pay off every loan in the country, the ones that are underwater or the ones that are in default?
Exactly my point. It’s been a scam for a very long time. And all it’s taken to keep the masses complacent was the merest hint that “you, too, can play along and benefit!” (Suckahs!)
FunnyDiva
Yup, I’m one of those “suckahs”, though I never bought into “Profit Uber Alles, I got mine SCREW YOU”.
What do you think of Geithner? My initial impression was negative but even I didn’t think he would be such a Wall Street shill. He seems to be out-Paulsoning Paulson. The sums are bigger, the thinking is screwier, only the cronyism is a tad less obvious.
So, you left Wall Street to write books. Clearly, you know what you are talking about. I’m just wondering, do you think you can affect more change by leaving and educating? Is that it? Seriously wondering. No snark.
I wish some of the smarter folks were given retention incentives to stay and help make it work from the inside. Maybe I’m dreaming.
I like the idea. Banks from the beginning haven’t wanted to accept this, because they don’t want to be stabilized if it means losing the ability to securitize and leverage and everything else in the future. it’s self-mutilation, but doesn’t seem to be an issue.
I hugely admire your work, and it appears that the US government is a weaker entity than almost-dead corporate entities. I appreciate your work for helping me understand, as Jane puts it:
Apart from Geithner’s approach, I don’t see how any economic system can function where people are unsure about the value of anything. Fundamentally, I can’t see any clear way that Geithner’s plan helps anyone figure out the value of any item, whether it be a security, an auto, a pair of shoes, or a doctor’s appointment.
But it’s become evident that the US government is focusing on saving ‘financial markets’, in all their securitized glory. How they can do that without creating ways for people to assess the value of goods escapes me. What am I missing…?
That’s our Hugh! Always such a ray of sunshine! Realism just SUCKS!
But I’m now using the word depression to describe the situation and invoking my Grandma’s post-Depression thriftiness that I didn’t understand at the time. And saying “make no mistake, this is not going to be over in a year, or even 3″.
FunnyD
Being a Cassandra sucks. Or, in my case, a Cassandra-follower.
For $12 trillion you could every mortgage in the country off. All of them.
TO JANE & NOMI
OK, so what can we do about all this?
(And why are all the smart people on the right side of all this GIRLS now? —-Thank GAWD we gave you guys the vote! That really showed typical male foresight on our part. It’s almost as if we KNEW us men were going to screw up right about now! Good thing we were in charge when the suffragette question arose. Perfect timing, as usual. Ahem.)
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I’m not saying we should pay them all off. But, there are $10.5 trillion worth of mortgages outstanding in the US today (subprime, alt-A, prime, in default, not in default) – which is a sizeable amount of debt to be sure. And, at that the minute we’ve passed the $10 trillion mark in federal money at risk (and I could post the breakdown of which agencies have posted how much, and for what between the Treasury, Fed and FDIC – I’m continually updating it for my book)) – it struck me as a tipping point. I have always said that the way to make toxic assets, less toxic AND help American borrowers simultaneously, is to work with the underlying loans. And, yet these loans have been the least of the governments attentions. It’s all about the toxic assets – which are multi-level, complicated constructs predicated on the loans (and of course, the staggering amount of leverage these assets commanded, which Geithner can’t even bring himself to discuss in detail.)
Given that fact, if you peeled out only the mortgages in default, and then adjusted down the current stuff to realistic values, presumably that 12 Trillion number would be substantially less. Sounds like a no-brainer to me. Executive order?
*g* I just get so tired of no one looking at the numbers and by taken in by whatever today’s shiny program is. I like that Nomi Prins does look at the numbers, and more importantly understands them.
You are missing nothing..It doesn’t make any sense. It never has. You wouldn’t probably buy a car without test-driving it, or at least asking someone you really trust to test-drive it. And yet, that is precisely what the government is doing – it’s buying whole lots, factories, of cars.
Just pre-ordered Nomi’s book.
Jane, OT, last week I received Christy’s email about kicking in $15 a month. I’m glad you made the pitch. FDL is the “straw that stirs the drink.” IMO, we HAVE TO support you and the outstanding stable of writers you have assembled. Writing this good, that makes complex issues this accessible, deserves to get paid. I only wish I could do more.
I have been kicking in $10 a month for some time. I’m gong to keep the electronic donation where it is. Depending on how each month goes, I’m going to try and shoot you a monthly check for another $10. I figure you get a bigger percentage of that 10 dollar check, because the credit card isn’t taking their percentage. My goal is that you can COUNT on me for $240/year. I just want to hedge my bet a little at the start.
FDL keeps me fluent about the political issues that mean the most to me. Given the quantity of the extremely high quality product that FDL puts out in an accessible and entertaining way, every day, I think I’m just flat out stealing from you.
Funny I was looking at polling last August that said most Americans were in favor of helping homeowners with their mortgages, but not the bank bailout. Since then we’ve had two bank bailouts, zero help for homeowners. And the one thing that would help homeowners at no cost to taxpayers — bankruptcy cramdown — can’t get passed because the banks don’t want it.
I do not find his encouraging.
thank you for stating the obvious so well
“(and of course, the staggering amount of leverage these assets commanded, which Geithner can’t even bring himself to discuss in detail.)”
That’s why we need a full-blown set of REAL hearings, not this song-and-dance crap that Frank has been running this week…
talking about things Tim won’t discuss, do you think he (or someone at the Fed or Treasury) did a full detailed analysis of AIG’s CDS book before agreeing to the bailout?
Any idea why they apparently paid off AIG CDS’s on debts which had yet to default at 100% on the dollar?
Apart from Geithner’s approach, I don’t see how any economic system can function where people are unsure about the value of anything. Fundamentally, I can’t see any clear way that Geithner’s plan helps anyone figure out the value of any item, whether it be a security, an auto, a pair of shoes, or a doctor’s appointment.
this statement!
Yes, it always has been. But, the banks never wanted to let that happen, they preferred taking tremendous losses and exposing the country to great risk, rather than have their loans picked apart by the government, even if the picking came with principal payments.
Thanks, I’m just focussed on Nomi’s response at 90.
It would be inflationary to pay off all the mortgage loans in the country – all the money currently budgeted for mortgage payments has to go somewhere.
Not to say that paying off the toxic assets isn’t inflationary as well.
Why not have the government buy all the loans as loans – at booked value, then reset loan terms (to reflect current housing values and ability to pay)? Bank capitalization gets handled. New loans could be sold back to banks or kept by the government. All the toxic crap is dealt with, loans never defaulted.
Well you can always go through by local market and see what houses were selling for pre-bubble and this would give you a means of determining what the overall value of the housing market should be.
it is shamefull,and will lead to more BUSHVILLES everyday
yes,they are sophmoric
Natch.
It is incredible to me that these guys were leveraging the leverages that were leveraged. . .that they can blame any single mortgagee (or group of them) for going hog wild with a second mortgage, credit cards or any other leverage on a home is par for the course. But these people were leveraging a house of cards, and they did it over and over.
It seems to me that we are still funding leveraging, not funding any legitimate actual thing that was used to create some original leverage, now long lost in a pile of nothing.
It is infuriating, and as we all know, it is we who will pay, no matter what.
I know, it boggles the mind. That’s why Geithner’s private-public partnership plan is so painful. Why give hedge funds 6 to 1 leverage and tell us, this is the best he can do, and it will be of benefit to the American people, when you could leverage nothing and help people directly. It is far cheaper and more humane. Toxic assets are a problem because the technology of Wall Street made them complex and with a lot of internal leverage (not a lot of loans floating a lot of bonds), and then used them as greater leverage – much of it in off-book ways. That needs to be addressed. But, in tandem, these assets were created to receive loan payments and pass them off to investors (in various manners)….when loans default the payments don’t come in, the assets depending on them collapse and become ‘toxic’. When the loans are paying, you don’t have that problem.
Well, there’s the problem right there, isn’t it?
It’s not about making actual people more financially secure. That would be bad for their moral fiber, just like getting a few more weeks of Unemployment checks.
spit.
FunnyD
very interesting,and more the reason to OPEN UP the books
Nomi, I assume the three credit bureaus, Equifax, Trans Union, and Experion are in bed with the banks. Is there any way we could leverage the weakest, which I think is Experion, to move forward on the solution you mentioned in your comment at 90?
I must be missing something, but while this process might be somewhat laborious, it certainly makes much more sense than the “solutions” that are currently being proposed and implemented. This tells me just about all I need to know about who holds the reins in Washington….and it ain’t us.
yes, we are funding leverage. in fact we are doing so at pretty cheap terms as well. one would think that adding leverage to a system whose major problem is leverage is not very logical.
I think you’re being too generous in your characterization.
I don’t think anyone is saying to do this. It just gives you an idea of the scope of the problem. It is though just as inflationary if the Fed and Treasury actually carried through on their $10-12 trillion in commitments. Right now we are in a deflationary phase but at some point all that extra money (even just that to date) is going to exact a cost. That is why it is so important to get it right the first time, instead of stumbling around expensively in the dark.
It’s about the financial powers that be, (on Wall Street and in Washington) not really wanting to change the status quo of the system. you can only profit substantially, if no one knows exactly what you are doing. breaking it down to loan levels, or derivative contracts, or separating mega-banks into parts provides transparency that’s good for people, bad for profiteers
“…much of it in off-book ways…”
That’s a downright scary concept. Talk about your ocean full of icebergs floating around out there…
Nomi, all Americans are deeply indebted to you and other scholars such as Galbraith, Roubini, Stiglitz, Baker, and many others. You could have used your intelligence and your understanding of this grand theft to enrich yourself. Instead you have passed up those riches to educate us. I wish more in the financial services had your “social conscience.”
It’s more of a question of where you put the money and risk, and setting aside even more to double-down on the same assets at the core of the risk, just makes no sense.
That is most sweet of you to say..
Hey, dude
Keep hitting us with the numbers. I think having and understanding the numbers is like the UV component of sunshine–the part that really does the job.
FunnyD
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OK, so what do we do about this?
A lot of us thought we had voted for change. Waiting for another election is not an option. How do we get through the corporate static and rattle our representatives brains on this?
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Seconded.
While researching my book, I reached out to one of the people at the Hedge Fund Research Group – that keeps the most statistics on that industry and asked if they could tell me how much leverage on average hedge funds have. I was told, “the only bit of leverage information we can use is whether the specific strategy of the fund uses leverage or not, which doesn’t mean that much. The one way, which is the more time-consuming way, is to call each fund and or comb each of their filings and see if they include leverage figures, and work an average off that.”
besides that, Citigroup actually reported $1.1 trillion of off-book assets in 2007, somehow that didn’t set off alarm bells
well isnt that just too damned bad…Wall Street deserves to go completely bust,if we cant know what the hell we are buying…..CAVEAT etc,etc,etc
Nomi I’ll ask you what I ask everyone — what are your top three recommendations for things we should do immediately?
Thanks for this comment, Mr. Arthur.
I was thinking of adding a little reminder that FDL needs “the support of readers like YOU. Thank you!”
I’m on the monthly $10 electronically, too. Only wish I’d done it sooner.
FunnyDiva
Thank you both. It’s much appreciated.
Most succinct confirmation that I’ve read yet. Thx.
It’s so frustrating. I think we keep pounding the logical over the expensively nonsensical.
We could all send an email, or many, to our Congress person – and say Bring Back Glass-Steagal – at least they might ask something about it at the next hearing.
Also, pose the question – why don’t we not let these ‘too big to fail’ institutions get so big?
Or, Show us the Assets – (we just bought)….
Democracy Now has had a focus for a couple of days on “payday loans” predatory lending. One thing they mentioned is the high interest that drew bank dollars from funding auto companies, where in a good year they might get 6-8% on their money into a business that could essentially guarantee 15-25% return.
Of course the idea that this type of loan and the repayment burden was hitting people who could not qualify for other loans or would not be able to get small loans is another thing that is not discussed, where that money that is going to payday loan sharks might go into the economy if it were allowed. These people could be buying shoes or tacos or paying for higher education,etc.
Citigroup, only. And presumably there are other big players? No wonder Geithner is tap-dancing on this whole hedge fund question.
This guy needs to be excommunicated, sooner rather than later. Do you see any chance of that happening?
Welcome to FireDogLake!
I was discouraged to hear Senator Byron Dorgan tell Rachel Maddow yesterday that only EIGHT Senators voted against Gramm-Leach-Bliley, which helped create the current catastrophe.
Do you think the current bought-and-paid-for Congress can make any headway in returning America to the sane days of Glass-Steagall? How can we demand our Congress do this on our behalf?
Do you have any idea how badly pensions are going to get burned in all this? I suppose the degree depends on how badly bondholders get burned in all this. But even so there seems to have been a lot of fraud and damage. Are state pension plans at the same or less risk?
One of the questions I liked today at the hearing was one that concerned why pensions which should be low risk ventures were so intimately tied up with hedge funds which are high risk.
Aha, I’d suspected as much but it’s nice to see a knowledgeable source confirm it.
Hence, more talk of ‘complexity’ so that it all seems so overwhelming and complicated that no one would ever dream of transparency, I presume.
i million Frenchies marched last week,mebbe we can call em FREEDOM Fries again,makes us look wimpy
That’s THE talking point imho.
We’ve got 10.5 trillion in unpaid mortgages. That’s a number a lot of Americans can understand. It’s a can opener to destroying Wrongway aka Eraserhead Geithner’s schemes.
The term sheets for Geithner’s plan call for auctions on the loan side and no auctions on the securities side. Is there some technical reason why there can not be or should not be auctions on the securities side?
This is a very good reason not to worry if you cannot pay your credit cards. The money will then go right into the economy and stimulate it. It could now be considered un-american to pay your credit cards. That is how I am forced to look at it now.
Seconded, thirded and fourthed!
Mr. Arthur speaks for me in this.
FunnyD
that my friend is the long and short of it all
BIDDNESS AS USUAL,nothing to see here folks…rinse lather repeat
I truly believe we need a legislatively re-structuring of the finance arena – more regulatory oversight is good, but not if the very foundation of what we are trying to oversee, is too murky to be viewed properly, let alone controlled effectively.
Thus, we really need to dissect financial conglomerates into the parts that Glass Steagal did. The consumer oriented ones (deposits / loans) and the speculative ones. The government should back the consumer oriented ones financially – and that includes the consumers. And, not the more speculative components,
This would have to work in tandem with overall regulations that keep every player on a more equal playing field – like repeal the commodity futures modernization act that let credit and commodity and other derivatives trade outside regulated exchanges – that’s a legislative action. Leverage Rules should be consistent – none of this 30 times crap that Goldman and Morgan Stanley and Merrill Lynch got, when they steamrolled the SEC in a 55 minute meeting in April, 2004 to raise their net capital act. Same for hedge funds.
Above all, if regulators don’t understand what they’re regulating, it’s a pretty good indication of danger. Either they do their jobs better with the assets and practices and structures out there, or legislation is required to simplify without a bunch of lobbyists and Washingtonians whining about how that will kill competition.
Digg this post right now please!
hahahaaaaa
should we wear DOLLAR SIGN$ lapel pins
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Dorgan sounded pretty good last night. Maybe we should all find some way of pursuing his goal of reviving & renewing Glass-Steagal.
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Thank you so much for being here today, Nomi. What a great conversation. We really appreciate you taking the time to help people understand what’s going on. You have an open invitation to come back any time you’d like — we’d love to have you.
Bush kept Paulson on way past his sell-by-date. I don’t think Obama will ditch him with all the focus on him. If anything, he could ditch him when it dies down. Geithner was the guy, btw, at the NY FED, who decided to allow Citigroup (whose Vice-Chair was former Goldman Chair / Clinton’s Treasury Secretary / Geithner’s mentor, Robert Rubin) to stop filling certain risk reports, that had been required of the firm because of its dealings with Enron’s off-book shenanigans.
Well, if all the unpaid mortgages, which would include the ones that I an others ARE paying, totals $10.5 trillion, what is the amount of total credit we owe? I know most people who do not have mortgages have credit cards, so it would be more total number of borrowers, but I owe way more in mortgage debt than I do on credit cards, so there must be some balance.
That still leaves a lot of debt leverage in the equation. What the heck is all that debt tied to? I think the answer is mostly, nothing.
One point often forgotten: Rubin had already made Citi much more than a bank a year or two before Glass-Steagal made what he had done legal.
Our Congress is very obedient when wrongdoers with power or wealth need retroactive permission for their illegality.
I think it has to do with TALF being originally about new securities and then old stuff added in at the last minute.
I’m glad you mentioned Dorgan – he has been against repeal of Glass-Steagal from the get-go. In 1999, he foretold of the billions of dollars that the repeal would cost. He is a very wise and thoughtful man, and I believe, the Senator in Congress who best understands this financial crisis.
yea. When the creditors call we tell them to take our payment out of the TARP. Of course, we will never be able to get a loan again. How many cars does a person have to own in a life time, anyway?
Thank you!
I kept thinking, “there’s gotta be something here that I don’t understand, because this makes no sense whatsoever if no one knows how to assess value.”
So this plan does not address any key issues:
— it does not re-regulated energy utilities
— it does not even begin to address problems with corporate governance (which is a scandal in itself)
— it doesn’t protect pension plans; it simply pays off Wall Street to keep the money flowing so that the looting of pension plans remains fairly invisible
– no clear action on Glass Steagall being reinstated.
This really underscores Taibi’s claims that its not at all about the money, per se. It’s about government captured by elites, who wanted access to tax revenues. At least, that’s the best I can figure out.
Glass Steagall?
You meant Gramm-Leach-Bliley, right?
FunnyD
And (I’m assuming) that by the time it all dies down, Geithner’s policies will be set in stone and therefore much more difficult, if not impossible, to correct.
Thank you very much for you time today. Very enlightening.
Yes, while Rubin was still the Treasury Secretary, Sandy Weill who ran Travelers Insurance at the time merged with Citibank in a technically illegal marriage, that was given two years if the legislative environment wouldn’t permit it by that time. Weill upped lobbying dramatically, while Rubin was in Washington. FIve months before Glass Steagal was repealed, Rubin ’suddenly’ gave up his public post, which no word of where he was going next. In October, 1999, Rubin landed at Citigroup, in November, Glass Steagal was repealed
That is high praise, indeed.
Jane, any way we could get the good Senator to have a chat with us FirePups?
FunnyD
That, and cheap leverage..
I didn’t know there was a Citi, Enron, Rubin-Geithner link. Someone a day or so ago here brought up an exchange of emails between Larry Summers and Ken Lay.
Thanks for coming Nomi.
Marcy is upstairs at the mothership talking about GE (Capital, Arms, Media) and whether it is a systemic risk.
They want our tax revenues. They don’t want us to unionize. They don’t want us to have access to health care. They want us to pay 30% on our credit cards. They want our kids in hock for their educations. They want it all now. They have it all now. If they want to eat us for dinner they will.
emptywheel has moved to the top of the front page!
What If Big Media Became a Systemic Risk?
I’m frustrated just like pretty much everyone.
I’ve read several of the many posts here regarding this financial crisis.
I’m trying to wrap my brain around the problem. Also, trying to figure out how I can survive this.
I was looking for a compelling reason to buy Nomi’s book.
I asked a question. It wasn’t answered, so I can only surmise.
If all the writers and talking heads who know so much but cannot affect a change, what can I do?
Thanks for being here this afternoon, Naomi. Most informative. Much appreciated.
Since some of the regulations do have merit, even though the current structure of the financial arena, makes them hard to enforce, I’m afraid that what he’s doing will be seen as beneficial, and will even capture the Congressional debate and imagination for awhile, but that will keep the real work from being accomplished.
We will be in a much deeper hole and with a smaller shovel to dig our way out.
Just a btw, Christy had a nice post early today. Check it out. And, call Sen. Dorgan and say thanks.
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Thanks for sorting this out. Good suggestions. We’ll all be buying your book. Enjoy the tour!
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It is time to go all Frenchy and have a few good demonstrations. I will meet you down at the local Pete’s.
demi, maybe we all call and e-mail the elected to reinstate Glass Steagal. That would indicate that we know more than they think. Maybe it is a start.
((((Demi))))
I think there are some partial answers in the thread, just not as a direct reply to you.
So…I wonder if any of the DFHs here has a big piece o property and is willing to host the FirePup CommuneCollective, aka DFH-meets-BushVille.
FunnyD
GREAT question!
Thanks for coming Nomi. Best of luck with the book.
I think like us, you can help in the uproar – the reason we are pessimistic about change, is not because there aren’t positive ways to stabilize the financial system and help the general population, it’s because our voices are at lower volume than the ones that have meetings in Washington..we just gotta keep yelling about this stuff together – because we are right.
I’ve been thinking about doing an Oxdown post about Larry Summers carrying Enron’s water during the California electricity disaster.
OT, Hugh, I remember you LAST YEAR talking about the total value of the outstanding mortgages and using it to blast Paulson. A lot of us here wouldn’t be so relatively fluent with these issues, if it were not for you.
You all have been awesome!
Jane,
Thanks so much for having me on. I’ve got to admit, I didn’t know what to expect, this being my first time and all. But, I am so thrilled about the level of conversation and everyone’s comments. I look forward to coming back!
I’ve been pushing for the DFH/FDL commune for a while. Also, I’ve been looking at and pricing land. Sort of the Waltons meet the Munsters.
I call and write and sign petitions, but it doesn’t really decrease my anxiety about this.
My kids know that I’m actively trying to figure this out, but that’s not going to help them buy houses.
Maybe I should write a book.
Thanks for coming, Nomi. I hope we will hear from you again, here.
yes
UpROAR!!!!!
Thanks for your efforts.
(Wanna join our commune?)
More meetups. It helps.
Thanks for coming, Nomi. You are always welcome around here.
Thanks to Jane and Nomi for an extraordinary exchange.
Really a pleasure!
Anyone have a great ‘Kiss Float’ idea to mock the bailout plan…?
Stop by anytime, and thanks for all your indepth answers today.
Maybe.
You, I’d meet with. Next time I come North. Not getting out very far from my home these days.
But, we can always dance, can’t we?
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PS Don’t drink the water in Cleveland.
I’m just sayin’.
We’ll look for you in Honolulu.
Don’t drink the water here, either.
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If that isn’t a clue for Congress then I don’t know what would be.
Highly educated bankers asked for regulations to be dropped.
Then they went for as much money as they could possibly get.
It’s ridiculous for rich educated bankers to blame poor uneducated borrowers.
Only uneducated people would believe the bankers’ blame game.