Indeed it seems that so long as the current “leadership” exists, all of American policy must more and more center around this corporatist class warfare goal, since only through ever more grotesque policy interventions can these bailouts (loot conveyances) and the delusion-based bubbles which have now long since replaced actual reality-based “growth” continue.

(Summers says it’s implicit America must return to “growth”? How? America’s economy has had no real basis for many years now. And now that resource depletion is setting in, the reality pie can only get smaller. These guys really are as crazy as they are criminal.)

Bravo!!

This problem is much deeper than what is espoused above as perpetrated by the Bush Administration. I think Paulson came in and was flanked by Bush’s vicious vice and colossal lying behavior. His attempt to save Wall Street is his demise. He too must be brought to justice.

If we do not find the courage to bring justice to these past eight years this shit will not clean itself up. We will not really be back to the “creating” part of our economy until justice is applied.

Ralph Waldo Emerson, from his essay “Literature”:

“Whoever discredits analogy and requires heaps of facts before (criminal) theories can be attempted, has no poetic power, and nothing original or beautiful will be produced by him.”

Our beautiful sailing ship is dead in the water. No strong breeze (truth) to get us creating again.

Sonnet #48

How careful was I, when I took my way,
Each trifle under truest bars to thrust,
That to my use it might unused stay From hands of falsehood, in sure wards of trust!
But thou, to whom my jewels trifles are,
Most worthy comfort, now my greatest grief,
Thou best of dearest, and mine only care,
Art left the prey of every vulgar thief.
Thee have I not locked up in any chest,
Save where thou art not, though I feel thou art,
Within the gentle closure of my breast,
From whence at pleasure thou mayst come and part;
And even thence thou wilt be stol’n, I fear, For truth proves thievish for a prize so dear.

William Shakespeare

Keeping tabs on the bailoutQ: Do you have a clear sense of what the overall TARP plan at this point is supposed to do? Are you capable of summarizing what it’s supposed to be doing?

A: No. And neither is Treasury. Treasury has given us multiple contradictory explanations for what it’s trying to accomplish.

There’s a major problem and a minor problem. The minor problem is documentation. I’ve spent four weeks now looking for someone who can give me the details of the stress test so that we can do an independent evaluation of whether the stress test is any good.

We get: “someone will call [you] right back.” Only the call doesn’t come.

The major problem is that Treasury has not articulated its goals. And without that, we can’t have a robust debate about whether they’re headed in the right direction; instead, we’re stuck with this more technical argument about the implementation of the [Term Asset-Backed Securities Loan Facility] or the details of the Capital Acquisition Program. And that misses the central question of, should we be subsidizing failing banks or liquidating them? When we acquire capital, should we exercise more control over the institutions that take the money or less control? Those are the central policy issues that the American public has a right to participate in.

Q: What [is] the underlying problem? Is it that there aren’t the right people at Treasury? Or is the lack of transparency and the lack of resolution on the conceptual front, is that an unspoken part of the policy?

Also see: Outrageous: Tarp Oversight Bd. Denied Bank Stress Test FormulaQ: You’ve been quite critical of the Treasury. What troubles you most about what you’re getting and what you’re not getting?

A: There’s no discussion of the overall policy. Instead, there are specific programs that are announced, and from that, it’s necessary to reason backwards to figure out what the goal must have been. It’s like a “Jeopardy!” game. If this is the answer, what was the question? It’s frustrating because without a clearly articulated goal and identified metrics to determine whether the goal is being accomplished, it’s almost impossible to tell if a program is successful.

And does the TARP oversight board have ANY idea what is going on in the TARP program? You can probably guess the answer.

Q: Do you have a clear sense of what the overall TARP plan at this point is supposed to do? Are you capable of summarizing what it’s supposed to be doing?

A: No. And neither is Treasury. Treasury has given us multiple contradictory explanations for what it’s trying to accomplish.

Yes, the duplicity of the Treasury department vis-a-vis Wall Street has been apparent to all of us. But do you realize what this means? We have an oversight board that doesn’t understand what it was established to oversee, can’t get its questions answered to gain such understanding, and is nearly in the same position (the board members’ knowledge and expertise aside) as the rest of the public to oversee the bailouts. Why even have a board at all, then, outside of political optics? Of course, we can’t have a board that would be able to do actual oversight, that’s capable of actually overseeing or even minimally interfering with Treasury’s plans for the banks, Wall Street, and for the country.

Finally see: Treasury Department Announces Specifics of Capital
assistance programThe CAP has two components. The first is a forward-looking capital assessment, or “stress-test,” that will evaluate the capital adequacy of a QFI under two alternative economic scenarios: a baseline, or expected, economic scenario, and a more adverse economic scenario. The second is access to additional high-quality capital through the sale of mandatorily convertible preferred stock to Treasury as a “bridge” to private capital in the future. The federal banking regulators have also released an FAQ document for the stress-test.

On October 3, 2008, then-President Bush signed into law the Emergency Economic Stabilization Act of 2008 (EESA), which granted Treasury the authorityto allocate up to $700 billion to the Troubled Assets Relief Program (TARP). Approximately $200 billion of TARP funds were used in the Capital Purchase Program (CPP), which provided capital to QFIs by purchasing senior preferred shares and warrants for common stock. The application deadline for the CPP for publicly traded institutions passed on November 14, 2008, with many QFIs choosing to participate, but financial institutions have continued to see capital levels erode through markdowns of illiquid assets and downward pressure on prices of common equity.

Full Disclosure: The Author has just had some cereal and is highly pissed off that Treasury is not being investigated by DOJ, which was dismantled by Bush, Alberto Gonzales, Paulson and all the other guys from The previous Coup, who obviously still are in control! Furthermore, if there are typos, I don’t friggn care!

Where will growth come from? Subtract the profits and salaries and wages generated by the sector and where does that leave the US?

It leaves it a poorer place confronting the reality that the living standard assumed as a right by Americans is not really sustainable without substantial gimmickry. And even with “financial innovation” the fall will stil come.

But I can see no particular reason why I should. I have, to the best of my ability, competently saved and invested my wealth.

The 19 largest banks haven’t done so with their wealth.So I’m trying to figure out how this fact justifies robbing me.

I am not happy with the insight that we get out of this by encouraging activities that ought to have been frowned upon two years earlier. This sounds rather like pushing levers and a see saw action. The question must be why he thinks stimulus must be funded from new money either by printing money or from tax payers rather than redirecting money currently used elsewhere.

The whole point about bubble is that money gets misdirected and I think government money gets misdirected as well. The politically easy answer is to borrow money rather than redirect. It also concerns me that banks are expected to earn their way out of this mess. Certainly on new loans they ought to make money, but since there are less loans it is not clear to me that earnings and the capital buffer will be big enough for the coming defaults on some commercial loans particularly loans to build retail space.

The assumption seems to be that we are in a V or at worst case a U shaped recession when all signals seem to point to an L shaped recession. If this is true then a bank which has passed the test will eventually fail causing more widespread damage to the markets than if there had been no stress test at all.

But hey lets tippy toe around while more jobs are lost and the real economy gets worse.

The last time I checked this was a drop in the bucket. Just a few months ago, the last figure for off-balance sheet assets I remember seeing was around $5 trillion.

This is the biggest farce of all in the testing. Ignoring these massive off-balance sheet exposures and pretending that their book values approximates market (i.e., their future cash flows and defaults) is fraud, plain and simple.

“And suddenly I am left forced to speculate on your intelligence.”

That strikes me as a fairly personal attack. However, I will overlook that and respond to your comments and the reasoned rebuttal from DoctoRx.

I am in the process of writing a post from the Administration’s point of view which I may post here but will be available on my site. It is intended to present a cogent counter-argument as to why the Administration is acting as they are.

In my view, the Administration’s strategy is not terrible. I disagree, but I understand the logic behind it. It hinges critically on their belief that time is our friend and that we can always take more drastic action down the line, if necessary.

In the meantime, under no circumstances do they want to admit or hint that any bank is insolvent because it will start a run. This is one reason the stress tests are very much a political exercise and won’t actually solve anything.

The real point of the exercise is to differentiate enough between institutions without suggesting any of them are actually insolvent so that remedial action can be taken at the worst capitalized institutions.

Sheila Bair is already laying the ground work for more FDIC power to take over bank holding companies if necessary. So, obviously, they do have a Plan B here.

The crux of my displeasure with the plans to date are twofold: they are a massive gift to bondholders and shareholders at the expense of taxpayers. And the plans do create more systemic risk because, in my view, time is NOT our friend. expect to see more on this theme later on my site.

Thanks for the spirited pushback. These are the types of debates we should have. But do try to keep the personal attacks in check. (You should notice that while I think the stress tests are a sham, I in no way impugn the Summers and Geithner, two experienced and intelligent individuals with whom I strongly disagree).

– Edward HarrisonTo a degree yes. It is very promising if the stress test is going to declare that multiple banks need to raise capital. There was a lot of speculation that the stress test would amount to nothing, and with the current ‘banks turning a profit!’ atmosphere there was even the possibility that no bank would fail.

So given the presented attitudes about this so called sham test, there should be surprise being uttered.

Of course, these are just leaks and the end results will be measured by whether this is 1) Actually true, and 2) The amount of capital required to be raised.

Come again? Banks directed to raise more capital shouldn’t be viewed as insolvent? Then what is the purpose of the stress tests, pray tell?

– Edward HarrisonAnd suddenly I am left forced to speculate on your intelligence.

Of course the government said they shouldn’t be considered insolvent. No bank that was insolvent would ever be able to raise capital. Telling the market: “Please view all these banks as insolvent and immediately start a run.” Not only would this defeat the purpose, but many would then blame the government of irresponsibly killing the bank.

Of course if a bank is deep enough under then the government should just close the bank. This changes little about how much your above statement lacks thought.

Overall this is promising news. I will, however, wait until we get the actual results and see how the by play falls out before deciding on my opinion.