By Neil Barofsky, the former special inspector-general of the troubled asset relief programme and is currently a senior fellow at NYU School of Law. He is the author of ‘Bailout’, released in paperback this week. Cross posted from the Financial Times with permission
Now that Tim Geithner has resigned as US Treasury secretary, it is time to survey the damage wrought from four years of his approach to the financial crisis. The “Geithner doctrine” made the preservation of the largest banks, no matter the consequences, a top priority of the US government. Aside from moral hazard, it has also meant the perversion of the US criminal justice system. The US faces a two-tiered system of justice that, if left unchecked by the incoming Treasury and regulatory teams, all but assures more excessive risk-taking, more crime and more crises.
The recent parade of banking scandals, such as the manipulation of Libor rates by Barclays, Royal Bank of Scotland and other major banks, can be traced back to the lax system of regulation before the financial crisis – and the weak response once disaster struck.
Take the response of the New York Federal Reserve to Barclays’ admission in 2008 that it was submitting false Libor rates and was not alone in doing so. Mr Geithner’s response was to in effect bury the tip. He sent a memo to the Bank of England suggesting some changes to the rate-setting process and then convened a meeting of regulators where he reportedly described only the risk but not the actual manipulation of the rate. He then put the government imprimatur on the rate via bailout programmes. His inaction helped permit a global crime to continue for another year.
When it was UBS’s turn to settle its Libor charges, even though a significant amount of the illegal activity took place at the parent company level, only a Japanese subsidiary was required to take a plea. Eric Holder, US attorney-general, demonstrated his embrace of the Geithner doctrine (a phrase coined by blogger Yves Smith) in explaining the UBS decision. He said that a more aggressive stance against the parent company could have a negative “impact on the stability of the financial markets around the world”.
This week we saw the latest instalment of the saga. In fining RBS £390m, the DoJ only indicted one of the bank’s Asian subsidiaries, avoiding the more damaging result that would have stemmed from charging the parent company.
Instead of seeking deterrence and justice, the US government increasingly appears to have fully absorbed the Geithner doctrine into its charging decisions by seeking a result that has a minimal impact on the target bank but will generate the best-looking press release. Some banks today are still too big to fail – and they are still too big to jail.
The lack of robust enforcement is of course not limited to the Libor scandal. It was seen in the recent settlement talks with HSBC, when Treasury officials reportedly pressed the DoJ to consider the broad economic consequences that would follow an indictment. After hearing these arguments the DoJ chose not to criminally charge HSBC.
And, of course, it is seen in the stunning dearth of criminal prosecutions arising out of the crisis. This was all but preordained given who the government turned to when the crisis struck: the same captured regulators who had blindly advanced bankers’ self-serving calls for a “light touch” before the crisis and who unsurprisingly embraced the Geithner doctrine afterwards. Having done so, of course, there would be no criminal prosecutions while the banks still teetered on the brink of collapse. The risk of causing them to fail, and thereby undoing all of the bailout efforts, was too high.
But that these arguments continue to resonate with officials in 2013 shows that the Geithner doctrine, perhaps justified by the conditions in 2008-09, has planted deep roots in our system of government.
This forbearance will have potentially devastating long-term effects, as each settlement on favourable terms reinforces the perception that, for a select group of executives and institutions, crime pays. It is only rational. They know that they will get to keep all of the ill-gotten profits if they go undetected, and on the small chance that they’re caught, most probably only the shareholders will pay – and only a relatively minor fine at that. The lack of meaningful consequences for those committing these frauds encourages future fraudulent conduct. Ultimately, the financial crisis was a game of incentives gone wild, and the lack of accountability in the aftermath of the crisis has only reinforced those bad incentives.
Breaking those incentives requires ditching the Geithner doctrine, which has led to the banks becoming even larger and more systemically significant than they were before the crisis. As a result, the DoJ’s fear of destabilising the global economy through aggressive prosecutions may indeed be well-founded. But that must not be the end of the story.
To reclaim our system of justice, the global threat posed by the failure of any of our largest financial institutions must be neutralised once and for all. They must be reduced in size, their safety nets must be dramatically constricted and their capital requirements enhanced far beyond the current standards. Then, and only then, can the same set of rules apply to all.
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“Catch-22 says they can do anything we can’t stop them from doing.”
So, accounting fraud is de facto legal. What could go wrong?
Mr, Barofsky,
Thank you for your work. You’re the only one aside from possibly Liz Warren trying to fix things ex cathedra, and it’s quite brave since there are powerful people with the means and motivation to ruin your career and your loved ones for speaking the truth.
I quibble, however, with some of the lingo that seems to have stuck from your time inside the bubble. Criminal bankers aren’t “too big to jail” — they are outlaws. Using the MSM terminology of “too big to jail” is conceding the moral high ground.
Can we also acknowledge that jailing criminal bankers will not destabilize the institutions they are looting, but strengthen them in the long term?
All of our tbtf banks should be governed by strict regulations which protect investors; and the big banks, if they survive in some form, should never again be permitted to mix their business deals with taxpayer money, social programs and public enterprises, like pension funds. Ring fence the privateer banksters. Turn them into filthy little islands of capitalism. But never again allow them to mix and mingle with the rest of us. Put the strictest regulations on their use of the dollar – which is backed by taxpayers; the dollar is never backed by bond vigilantes and other hit-and-run speculators. It has always been their favorite prey. And when they go bust – which they will because it is their business plan – do not bail them out. Liquidate them. And in the meantime stop any and all reliance on them as some necessary evil to make our economy work. They are not necessary. Go to a system of public banking. Do it now. Put the Fed under the Treasury and the Treasury under the taxpayer. There’s no reason on earth to continue with another version of this “banking model.”
Will be interesting to see how long Justice only goes after small fries. I have long assumed that, eventually, checks to corporate criminality will be administered Putin-style. By making an example of one or two big names, you show the rest who’s boss and keep them in line.
http://en.wikipedia.org/wiki/Khodorovsky
That’s how it usually works.
Sad that the U.S. should arrive at such a state, though.
Idunno, the annals of true crime fiction are filled with stories of rich people committing murder and getting away with it, Can’t think of any titles off hand, but vaguely remember one where the guy killed at least two people in front of witnesses, was tried for it, and the jury acquitted him. Biggest employer in town, after all.
That the USA and the former CCCP would eventually become one another is a cliche’ from my long-past youth. That it’s the case at the very top is old wine in new casks.
Thanks so much for your Wikipedia referral.
What I was saying back in 1987 – “Don’t know who won the cold war but I know who lost, it was ‘We The People'”…
Read Neil Barosky’s book “Bailout” it’s a “rite of passage” revealing very clearly that most governments on this planet have been corrupted largely by financial sector wealth gained under the deregulatory ideology of Neo-Liberalism and for the most part democracy is now a sham.
You want to take fraud out of the US financial system? Here’s a start.
1) Turn banking into a public utility offering only plain vanilla products.
2) Fold the Fed back into the Treasury
3) Radically raise taxes on the wealthy and corporations
4) Vote only for politicians who back this program and fight for it, no exceptions
You need to dis-mantle the something for nothing culture that has shrouded the entire world.
How about only being compensated for creating economic value in your work? That would be a novel idea in a world where the more parasitic the behaviour, the greater the rewards.
Frederick Soddy wrote about this difference back in the 1920s.
Thank you Mr. Barofsky for your great book…..
Otherwise:
Our present financial system is about the same as the Super Bowl without the referees………
Just think, the two teams line up for the upening kickoff; the multitude of referees are crouched and ready for the kick; the kick is in the air…….and, and, and,…….
ALL the refs repair out of the stadium to the nearest pub……..
What do you think happens?????
CHAOS!
That’s what!
And, that’s what has happened to tour financial system for the past 50 years plus…..in incremental stages….
We have to get the “referees” back into the game!
Actually, it’s like the Super Bowl where the referees don’t see the white shirts holding tacklers and receivers nearly every play, but see every touch by the red shirts as interference.
The form is preserved but the result is no surprise.
The 19 year old student caught with one joint is going to spend time in jail while the bankers caught supporting the violent criminals who ship it international will pay off chickenfeed fines with company money. The forms are preserved, but the result is not surprising.
I don’t agree with calling this “the Geithner doctrine”.
It’s the Obama doctrine. He put Geithner and Holder on his cabinet. He kept Bernanke at the Fed.
The banks paid for his election, and he’s paid them back a thousand-fold.
And it looks like it continues, even though the banks all decided they could get an even better deal from Romney.
~
Obama had no interest (I don’t mean financial interest, I mean personal interest) in the banking industry. It wasn’t an issue he campaigned on.
Yes, Obama is a profoundly “status quo” kind of guy. But he likes being seen as transformational, witness his health care bill and his eagerness to gut Social Security and Medicare and do a “big” budget deal.
Geithner is the architect of and front man for this strategy. Ron Suskind’s book Confidence Men points to times when Obama was seriously frustrated with the banks and was about to Do Something and Geithner talked him out of it. Obama identified with Geithner as well as respected him (they’ve been described as having “man love” for each other) and so Geithner had real sway over Obama. Not that that exculpates Obama, but Geithner has been the loudest and most effective opponent of imposing ANY meaningful sanctions on banks and their executives.
We wrote this in 2010:
Early in 2009, the banking industry was on the ropes. Both the stock and the credit default swaps markets said that many of the big players were at serious risk of failure. Commentators debated whether to nationalize Citibank, Bank of America, and other large, floundering institutions.
The case for bold action was sound. The history of financial crises showed that the least costly approach is to resolve mortally wounded organizations, install new management, set strict guidelines, and separate out the bad loans and investments in order to restructure and sell them. An IMF study of 124 banking crises concluded that regulatory forbearance, the term of art for letting impaired banks soldier on, found:
Shuttering sick banks is hardly a radical idea; the FDIC does it on a routine basis. So the difference here was not in the nature of the exercise, but its operational complexity.
This juncture was a crucial window of opportunity. The financial services industry had become systematically predatory. Its victims now extended well beyond precarious, clueless, and sometimes undisciplined consumers who took on too much debt via credit cards with gotcha features that successfully enticed into a treadmill of chronic debt, or now infamous subprime and option-ARM mortgages…
The widespread, vocal opposition to the TARP was evidence that a once complacent populace had been roused. Reform, if proposed with energy and confidence, wasn’t a risk; not only was it badly needed, it was just what voters wanted.
But incoming president Obama failed to act. Whether he failed to see the opportunity, didn’t understand it, or was simply not interested is moot. Rather than bring vested banking interests to heel, the Obama administration instead chose to reconstitute, as much as possible, the very same industry whose reckless pursuit of profit had thrown the world economy off the cliff. There would be no Nixon goes to China moment from the architects of the policies that created the crisis, namely Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and Director of the National Economic Council Larry Summers.
Defenders of the administration no doubt will content that the public was not ready for measures like the putting large banks like Citigroup into receivership. Even if that were true (and the current widespread outrage against banks says otherwise), that view assumes that the executive branch is a mere spectator, when it has the most powerful bully pulpit in the nation. Other leaders have taken unpopular moves and still maintained public support.
Obama’s repudiation of his campaign promise of change, by turning his back on meaningful reform of the financial services industry, in turn locked his Administration into a course of action. The new administration would have no choice other that working fist in glove with the banksters, supporting and amplifying their own, well established, propaganda efforts.
Thus Obama’s incentives are to come up with “solutions” that paper over problems, avoid meaningful conflict with the industry, minimize complaints, and restore the old practice of using leverage and investment gains to cover up stagnation in worker incomes. Potemkin reforms dovetail with the financial service industry’s goal of forestalling any measures that would interfere with its looting. So the only problem with this picture was how to fool the now-impoverished public into thinking a program of Mussolini-style corporatism represented progress.
http://www.nakedcapitalism.com/2010/03/the-empire-continues-to-strike-back-team-obama-propaganda-campaign-reaches-fever-pitch.html
Yves, your analysis is fundamentally mistaken. Implicit in your description of events is the idea that there is no cause and effect relationship between a candidates sources of campaign financing and his policies while in office. The idea that Obama was simply swayed by the power of Geithner’s arguments or awed by his intellect is simply a remnant of the liberal delusion that as a black man he must have the interests of the people at heart.
I know no one remembers our recent history, but I’m not afraid to suggest another possible motivation for Obama not choosing to challenge the hegemony of financial power. One of the “traditional” ways of changing political leadership in the USA in my lifetime has been through political assassination. Obama would have to be a fool to not consider the personal consequences of confronting the most powerful forces in the country.
Thor’s Hammer: Political Assassination:
Yes, but if you ‘eliminate’ this President, you get a President Biden as follow-up, and he is leftier than BO. No rational conservative would want to replace BO with Joe. No irrational conservative would have the resources to pull it off, since all the grassy knolls and book depositories are exhaustively pre-vetted.
How often is murder based upon calculation instead of revenge or irrational hatred?
If you were the first black president, hated by a huge group of the population armed with assault weapons would you be concerned for your life? Or would you just be stupid?
If you were making the decision to doublecross the most powerful group of your financial benefactors who had paid for your election and expected a return on investment would you be concerned for your life expectancy or just stupid? Especially when your assassination could easily be blamed upon the hordes of crazies that would party like mad if it happened?
Given Biden’s pandering to the banks – especioally the credit card companies comfortably strangling Delaware – we must never forget that Biden led the charge on changing the to bankruptcy laws in 2006 (no doubt to the delightful surprise of Dubya) a debtor revision that has been a huge source of pain for debtors screwed by the banksters.{Even the ABA opposed it saying it would make BK too expensive – and they stood to gain from it.}
I for one, having been through an unbelieveably expensive personal Chapter 11 saw first hand what Biden did: while I owed too much money to file Chapter 13,(which he also stiffened so that debts cannot be discharged) thus having to file a Chapter 11 at excessive corporate rates, as an individual I had no where near the protections that corporations that file Chapter 11 have. Once again, corporations being incorporated in Delaware, Biden’s fingerprints. As an individual in Chapter 11, (there are only 700 or so individuals in Chapter 11 a year in the U.S.) the bk judges, crooked and bank friendly as they are, think you have minions and staff like a corporation. Babe, I’m BANKRUPT! My staff is me and my lawyers, and he just cleaned me out for $100K.
Point is, Biden is adored by the banks, and his payback will come in 2016 with semi trailers of bankster cash backing up to his headquarters to disgorge bribes, um, contributions.
Foamy Geithner will be in his seignorage at the Council on Foreign affairs sucking Rubin’s dick, and Foamy’s book will not have done well since everyone knew the story, as summed up by a rascal this morning:
“Bailed out friends at Goldman [and Citi, et al]. Screwed everyone else til they bled. The End.”
Your analysis misses key points that change the conclusion.
1. Banks withdrew their support of Obama regardless. Merely saying a few bad words to them in public after it was clear he was a wuss was sufficient.
So if you are saying he intended to pander to them to curry favor, he didn’t do a very good job of that. In fact, there were frequent reports in the business press about how cool president Obama would be to bank execs when he met them. Apparently didn’t butter them up, didn’t treat them as if he respected, liked, or though much of them.
And Obama did his fundraising in 2008 with Paul Volcker as his most prominent finance person. Geithner and Summers were no where to be seen. It was a shocker when he nominated Geithner as Treasury Secretary.
Everyone assumed Volcker would be his pick. So he RAISED MONEY SUCCESSFULLY with someone who had been tough with the banks in the past, for their own good (the banks profited enormously from the Volcker-generated disinflation, but he almost broke the financial system pushing interest rates to the moon).
2. You were not sufficiently granular in identifying where his financial services industry support came from. It was hedgies, PE guys, AND investment banks. And the hedgies and PE guys and other fund managers gave more in aggregate than the investment bank guys.
The PE guys, hedgies, and investors generally were super unhappy with the banks’ conduct during the crisis. We are talking a few firms that needed to be brought to heel. Obama only needed to get tough with Citi and Bank of America to send a message.
And you ALSO forget that the banks were TERRIFIED at the beginning of 2009. This was an inflection point that he blew. He could have gotten tough then and they would have accepted it as necessary and inevitable.
The issue was Citibank and the way Obama had taken to the Rubin crowd, symbolized by him bringing Summers and Geithner in in such prominent roles.
They were dispensable financially, but Obama was a Chicago school guy and intellectually, the Hamilton Project crowd appealed to him. It was a club he wanted to join.
I don’t disagree that Obama should also be held to task for the bank friendly policy, but Obama deferred to Geithner. Geithner was clearly the intellectual architect.
Obama loves expertise, he’d never acquired any on this beat and couldn’t be bothered to make the effort to get up to speed even though this became the most single important issue of his presidency.
Moral courage is willing to fight for your ideals. Obama, the man of change, folded like a cheap suit as soon as he was sworn in, as had Clinton before him. This country hasn’t had anyone with moral courage in a very, very long time. Except, maybe, Dr. Steven Greer.
Yves I don’t disagree with your granular analysis of Obomba, and how and why he failed the many of us who knew he had a unique moment where we really could have had meaningful change. But the real failure is found in your last sentence: he couldn’t be bothered to get up to speed on the single most important issue of his presidency. That sentence encapsulates our grandest problem today: ALL of our politicians are lazy mental midgets and not up to the highly complex task of regulating our highly complex society. I mean look at the Senator who said the internet is a “series of tubes”. Intellectual questionning and rigor gets replaced with blind ideology, and we all suffer the result. Bush went to Iraq before he ever knew there was even a difference between Shia and Sunni; Obomba invested in solar and batteries before anyone on his crew knew the term “EROEI”. How can these people possibly regulate financial services if none of them even know what front running or moral hazard or quote stuffing even mean? (I’m pre-supposing that they are well-meaning uncorrupted individuals with the greater good in mind, which I know is a huge flawed assumption, alas)
Yves, have you read this post from Arthur Silber?
It was May 07, 2008.
“The Wall Street plan for the Obama-bubble presidency is that of the cleanup crew for the housing bubble: sweep all the corruption and losses, would-be indictments, perp walks and prosecutions under the rug and get on with an unprecedented taxpayer bailout of Wall Street.”
I didn’t run across it until much later, myself. (In fact, I voted for Obama in the primary and general elections in 2008. I didn’t expect any kind of liberal…but he turned out far worse than I thought.)
That is exactly what happened.
~
Geithner was the President of the New York Federal Reserve and in order of importance, from the perspective of someone who is not a Harvard MBA, he appears to be the second most powerful person after the Chairmen of the Fed, when it comes to being an expert authority on finance and banking. Now, Obama, despite the straw man arguments, that he is worshiped, seen as the magical Black Man, who knows it all as the omniscient outsider, deferred to by simpering, guilty white people, this belief makes you a really close textual analyst of Time Magazine or a graduate of the Glenn Beck School of Advanced History and Stuff.
Here is how we know human beings function. They are socialized. The cause of Obama treating the banking industry as well as he did, can be directly attributed to Geithner forcefully advocating what he did, in short, his doctrine, to avoid disrupting the actual executives involved because they operate the very machinery upon whose existence we would perish as a nation without. They are, in the Geithner Doctrine, The Indispensable Party. Obama, who knows no more about finance, than most people, because even he, the one I pray to every night for being the first Black President and the first Black President to be Re-Elected, even he is a not a specialist in finance, confident enough to go against a forceful New York City Federal Reserve Bank President.
http://www.youtube.com/watch?v=qDJg3baR_X8
The preceding video, explains part of larger study of the circulation of the elites, in this case, the African Americans who were the best and brightest of their communities. Once they are taken up in the elite prep schools, as a teen, as Obama was, they become quite comfortable around people who have wealth and power and maybe even some brains to go with that social capital. And once they complete the circuit of education all the way through grad school, or Harvard Law, they are fully socialized in the set of cultural expectations and behaviors that are acceptable. AS Yves pointed out, Geithner and Obama got along well as individuals and Obama using him as his trusted adviser, went against his personal take and went instead with The US Treasurer, who was The New York Federal Reserve President. Many comments here seem to forget some basic social science, and history, when we forget how extensive bureaucracy is in our complex society and how much we are all specialists. If Obama went against his council of economic advisers who seem to have a united front with Geithner as the closest point man to the president, the simple connection from point A to B is laid out by Suskind: trust. Obama is a trained attorney and professor of law. He will not, without being intimated informed by the methodically collected facts, have any opinion about anything, much less go against the considered and forcefully argued opinion of economic experts, who seem as good as all the people he schooled with, only better.
Through socialization, education and bureaucratic specialization, Obama is a team leader, and in the case of the American Economy, he could not feel more confident in his gut instincts, in the face of the similarly educated experts, his counterpart in economics to his elite law training. They are there to advise him and most people feel really helpless, no matter how smart they are, and how good they are at what they do. Even Bill Clinton was wowed by Ron Rubin into believing bond traders rule the reality of the world and the economy.
…………………
Excerpt from NY Magazine article:
”
Hard as it may be to believe right now, the most important thing Bill Clinton ever said was not “I did not have sexual relations with that woman.” Although that statement did have the virtue (from the perspective of memorability) of being, well, a bald-faced lie, there’s nothing especially profound about it. Consider, by contrast, the passage from Bob Woodward’s The Agenda in which Clinton asks the rhetorical question “You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of fucking bond traders?”
Now, that’s poetry. And for a time, that moment when Clinton realized that the U.S. bond market had effective veto power over all of his economic plans took on the force of a primal scene. Bond traders, with Fed chair Alan Greenspan as their honorary leader, were understood as controlling the secret levers of the economy. If they didn’t like what they saw in Washington, or in the housing market, they’d stamp on the brakes, sending interest rates soaring and making unemployment lines longer. Keeping the bond market happy was, it seemed, a president’s first priority.”
http://nymag.com/nymetro/news/bizfinance/columns/bottomline/199/
Capitalist have internalized their world view into society at large. Marxists call it false consciousness. So, it should come as no surprise that the regulatory capture of the US Treasury is effected by individuals who work cheek to jowl with money center banks in NYC. And, it should come as no surprise that the economics profession has been captured as well. With Obama surrounded by who reputedly are the best of the best of the best and brightest, from Harvard, Princeton, MIT, NYC FED, you are not going to get a green light to jail the people whose conviction will immanentize the eschaton.
Paul,
I proposed a somewhat simplistic and linear connection between money and policy. Your analysis is much more complete and a far better description how policy actually gets decided.
Note that he wrote this when we were talking only about a housing bubble. May 2008 was in the period when everyone (save yours truly and others not part of the official messaging/media apparatus) were in Mission Accomplished mode after the Bear Stearns bailout. Sweeping that under the rug is a much tidier proposition than burying the culpability for a global financial crisis.
As others have said, the Geithner Doctrine should indeed be called the Obama Doctrine. Please call a spade a spade. Obama chose Geithner and empowered him over the rest of the cabinet from the start, probably according to a plan drawn up months before. And it was Obama himself who constantly undercut Romer’s proposals — above all, he tragically rejected her proposal for a second economic stimulus in the fall of 2009, a period when he was busy choosing the members of the Catfood Commission.
When Obama was a senator he hired one of Rubin’s former assistants as one of his most important advisors. And it was Rubin who reportedly installed Geithner as president of the NY Fed in spite of his lack of expert knowledge of either economics or banking (he was a foreign policy expert and had worked for Kissenger Associates for several years) and presumably because of his reputation for loyalty and obedience to his organizational superiors. As far as I know, we have no detailed account of who persuaded Obama to hire Geithner, but isn’t it likely to have been Rubin or one of his people? And isn’t it also likely that candidate Obama and Geithner were both being pushed by the same group of people on Wall Street, a group that probably included some Rubin people? A lot more difficult investigative research needs to be done in this area, but you should consider the possibility that the Geithner Doctrine should actually be called the Rubin Doctrine.
In Obama: The Postmodern Coup by Webster Tarpley, which came out before the nomination of Obama, Tarpley and co-authors, Marshall and Mowatt, state that Obama is a creature of finance capital, that he is being put into power by the financial oligarchy for the purposes of providing left cover for their drive for fascist control. Tarpley notices a similarity to the rise of Mussolini, his leftist patina that is paid for by the finance capital.
In Obama: The Postmodern Coup or in Tarpley’s other book, The Unauthorized Biography of Barack H. Obama, the fact that Tim Geitner’s father hired Obama’s mother to do work for the Ford Foundation in Indonesia, helps to show that Obama was around an “insider” pathway to the bowels of power from the beginning.
Tarpley lays great emphasis on the role of Zbigniew Brezinski in the mentoring of Obama. Brezinski was a senior campaign adviser to Obama and most likely was his mentor that groomed him at Columbia University.
Tarpley demonstrated that Obama would be the next Carter, another of Brezinski’s ‘projects’.
These books by Tarpley and company have been proven absolutely correct in their campaign season warnings.
Now Obama is working in tandem with the Republicans, utilizing the fake left/right dialectic to push Wall Streets desire for austerity.
American’s who have lost track of the reality of what makes a productive economy fall pray to the left and right, who
both block efforts to revive the American System of Economics in the Hamiltonian/Lincoln/FDR/JFK tradition.
A platform to deal with the present crisis can be found at the United Front Against Austerity website which includes an article that advocates a return to Parity Production Economics, the lost secret to natural productive capitalism, in the essay Wither the Farm Bill-Prosper The Nation written by Bruce Marshall
“Some banks today are still too big to fail – and they are still too big to jail.”
Their executives are too well-connected to jail. This is an important distinction, and the recent Breuer/Holder waiver for money laundering on an enormous scale illustrates the distinction. You can jail executives without destroying – even fining – the bank. You can, in particular, jail *former* executives of such banks. Banks do not go to jail, people do. But CEOs do not, and the reason has nothing to do with systemic importance. CEOs are *not* of systemic importance even if the banks they are ruining are. Holder, Breuer, Geithner, Obama are pretending that CEOs and financial corporations are somehow part of the same holistic whorehouse, and that one cannot be investigated, indicted, or imprisoned without destroying the other first. That is wrong, laughably so in the case of former executives. Now Obama Inc.’s sleight of hand permeates even the writings of their most well-informed critics.
“But CEOs do not, and the reason has nothing to do with systemic importance. CEOs are *not* of systemic importance even if the banks they are ruining are.”
That is entirely correct. I was somewhat surprised that Mr. Barofsky did not engage on the subject of how the “collateral damage”/”systemic importance” is of no relevance to the question of whether to charge *individual” employees/executives at banks who committed criminal fraud.
Interestingly, nobody — not Breuer, not Holder, not Obama, not Barofsky — has articulated an official rationale for why, in Obama’s DOJ, there have been no prosecutions of such individuals.
Read more at http://www.nakedcapitalism.com/2013/02/neil-barofsky-geithner-doctrine-lives-on-in-libor-scandal.html#fWrIuYv2AEwAEkxx.99
Yes, but the act of prosecuting the CEOs would uncover the dominoe-chain of unsustainable liabilities, which if satisfied would bring down the entire system.. monetary deflation, which we would have gotten to begin with, but which was stayed by the bailouts. This was what kept Breuer up at night. This was part of the Geitner Doctrine, or whoever originally thought it up.. reflating the bubble, denying the losses, disallowing the mark to market, kicking the can. This was not Breuer’s idea, but he was sufficiently impressed upon the importance of the task, as they all were. The CEOs couldn’t be pursued, or the whole scheme would collapse.
There have already been murders to protect this lie, and they will kill again to keep it going. I’m curious to see what happens with some of the new action in Congress, Cummings and Warren pursuing the abrupt ending of the foreclosure review, and now Jeff Merkley sitting on a key financial committee.
http://www.bizjournals.com/portland/news/2013/02/07/merkley-to-oversee-dodd-frank-centric.html
Matt Stoller seems to like this guy Merkley, and I respect Stoller’s opinion. I suspect many in Congress understand the injustice that’s being foisted on us, but it again comes down to the will to fight the corruption and do the right thing.
Re-flation [or call it by its other name – avoiding deflation] is the Number One most important tenent of modern economics. So from that standpoint you can call all this stuff Economic Doctrine, and it was no ones idea – it is the current way of the world.
Personally, I don’t wholly subscribe to any economic school or political ideology [gives me lots of flexibility in what to believe in], but all the bad effects of this institutional doctrine – like being very self serving for the banks, being supportive of a dysfunctional status quo, socializing losses and privatizing gains, etc….is really all an “I told you so moment” for Austrian economics. Wish they had some better solution up their intellectual sleeve than “Creative Destruction”, however. Something like “Controlled Demolition”, maybe.
Avoiding deflation? May I remind you that many have been deflated, both financially and emotionally. While those in the upper percentile have seen nothing but more bonuses and bigger checks since 2008. Seems to me that deflation may be avoided by a few at the expense of the many.
Strongly disagree that not prosecuting crime is somehow a better long term choice than having a functioning system of laws. Before Obomba they were just too big to fail; now they’re also too big to jail. You don’t seem to understand how threatening that is to the very idea of a civilized society. As Yves says they normally take one or two of the top guys down and that sends the message to the rest. Instead we now have the finance titans institutionalizing financial crime deep into their business models: why not launder money for the world’s largest drug cartels or move an interest rate that controls $117 trillion in notional when you KNOW you will get away with it, with your Asian subsidiary or your junior traders just paying a small “law-breaking license fee”?
But there is the comedic value of watching “systematically important” people(who’ve paid themselves a billion or two in personal recognition of this importance) play the get out of jail free card, “I didn’t know that was going on”.
At least we can get a chuckle out of that, tho I now worry about “laugh inflation”.
“The lack of robust enforcement is of course not limited to the Libor scandal. It was seen in the recent settlement talks with HSBC, when Treasury officials reportedly pressed the DoJ to consider the broad economic consequences that would follow an indictment”. Main Street says “bring it on”. A couple of overdue big bank resolutions would be a small price to pay for the preservation of what little remains of the public’s trust in the integrity of its public officials, big banks, and regulatory agencies.
Aygul Ozkaragoz says:
February 8, 2013 at 2:56 am
Aygül Özkaragöz | February 7 2:09pm
Based on this opinion piece, one can only infer that the politicians, regulators and the bankers are all fiddling, while ‘Rome is burning’. Be that as it may, how come there is no FDR, who reportedly ‘saved capitalism, despite/from the capitalists’.? What about the upshot of the S&L debacle of a thousand perpetrators successfully prosecuted? Could it be some other forces are at play in this depression-like crisis? The new banking sector with its ‘shadow’ component, declining productivity, disintegrating hegemony of the U.S. may have all conspired to reconfigure the world that we have known. In this new world, the Geithner doctrine may just be a familiar set of tools to jump start the broken economy. The question is will it?
http://www.youtube.com/watch?feature=player_detailpage&v=iQ0EoL5kXD4
Is there even a shadow of a doubt that the Wall Street/Washington DC Axis of Evil is a criminal enterprise that makes the Mafia seem quaint by comparison? And as for Al-Qaeda of Wall Street, why are they not on the drone list? Occupy Wall Street probably is…
in the early 80’s Reagans DOJ merely made corrupt defense contractors pay back the money, now Obama’s DOJ does nothing.