Even if he did not realize it, and he probably is too obtuse to have done so, Democratic Representative Paul Kanjorski admitted that government is the cause of the financial problems.

In proposing that government be given more power to meddle in the financial markets “Kanjo” said the following:

“‘No firm should be considered to be ‘too big to fail.’ Financial firms that want to play in a casino need to have their own resources to cover their bets and not assume that tax dollars are available in reserve if their bets fail,’ he said.”

So Kanjo thinks that the reason for the financial mess is that banks had a distorted perception of risk.  Banks were taking risks that were too great relative to what they could afford to lose.

Kanjo is correct in thinking that to an extent.  Let us consider what may have created that distortion for banks. 

The Democrat/Socialists since the 1970s starting with the Community Reinvestment Act were  putting pressure on banks to lend to unqualified borrowers.  In other words, banks didn’t want to take on those risks but the government said “do it or else”.  This was started with Carter and driven furiously by Clinton.

Then in the 1990s when banks wanted to grow the government had laws in place that made it difficult for them to do so.  One of the very few options for banks to grow was through mergers and acquisitions for which banks had to seek and receive government approval.  What the Democratic Congress decided to do was make approval contingent upon satisfying certain criteria such as giving loans to high-risk people who the banks did not want to give loans to in the first place.  So banks were coerced into giving loans to people because the government gave them a none-too-subtle hint that if they did not they could not continue to grow their businesses.

The government then fueled the fire by maintaining interest rates very low.  The Federal Reserve would loan money to banks at incredibly low interest rates which the banks would then loan to people so they could buy all those houses.  Since the rates were low the bank would offer low rates to make things more affordable.  Americans, and even some illegals, were given loans at very low introductory rates which caused them to take loans when they should not have or take loans that were too big.  And all of that occurred because the government pressured banks to lend to high-risk people and then provided the banks with the financing to do it.  The bank not only gave the gun to the baby but they gave it plenty of ammunition to reload.

So the government created all these rules and regulations to control how banks operated and enabled them to do so by maintaining terribly low interest rates.  All of which contributed to distorting the true nature of the risk that was being undertaken.  There is one additional aspect to this that cannot be forgotten: 1966. 

In 1966 Congress involved itself in banking by interfering with savings and loans (S&Ls).  Ironically this too had its roots in mortgages.  In 1966 government began to limit how much interest a bank could pay you because it did not want you to save your money, it wanted Americans to spend their money by purchasing houses.  And thus began government’s forced-march of Americans and S&Ls down the path of financial ruin.  This all came to a head with Congress’ passing of the Tax Reform Act of 1986.  The effect of this was to cause Americans to sell their houses which in turn caused prices to plummet.  This is what became known as “the S&L crisis”.

But how did this contribute to the “financial crisis” of 2008?  Wouldn’t one think that the mortgage industry would have learned something?  In a word: yes.  But that is not the right question to ask.  The question that should be asked is not if the financial industry learned anything from the S&L crisis but what was learned.  The government’s Federal Savings and Loan Insurance Corporation was in the position of insuring all the S&Ls in what became effectively a tax-payer bailout of these failed institutions.  So what the financial industry learned first-hand was that if they failed it didn’t really matter because the government would bail them all out.  This belief was reinforced by the bailout of Amtrak in 1971 and Chrysler in 1979.  Why wouldn’t they think the government would bail them out in 1986 or in 2008 for that matter?

The banks for the most part did just what the government wanted them to do in all of these cases.  The results in all cases as we all know were horrendous and only got worse as the government became more involved. 

Had the government not interfered with regulation and manipulation of interest rates would there have been the massive inflation of  real estate prices followed by the creation of associated derivatives leading to the ultimate catastrophic failure?  Almost certainly not and any failures that would have occurred would have been much smaller because there would have not been the leverage provided by the Federal Reserve pumping money into the system.

Isn’t it interesting that in 1966 the government stepped in to “fix” a banking system that was not only working but encouraging people to save rather than spend and that led to a massive failure of the system.  The same result was had in the auto industry.  And now here we are repeating the same mistakes again only doing so with much more sever consequences.

The most concerning aspect of all of this can be found in another of Kanjo’s statements

“After meeting with many European Union officials and members of the European Parliament earlier this year, I realized that we share many of the same concerns,”

Just like Obama’s efforts to strip Americans of their sovereignty through international treaties on CO2 emissions, gun control and causing a collapse of the US$ in order to drive the world to one currency, Kanjo is coordinating with foreign nations to structure the government take-over of US banking.

Although these are very disturbing actions being taken by Obama and his fellow socialists in Congress, they are by no means a recent development.  Government has been attempting to subject Americans to socialism for decades and each and every time the consequences are more severe and result in the government becoming more involved only to repeat the same cycle twenty years later for the next generation.

The FDIC announced last week its insurance fund has dropped 20 percent to $10.4 billion. Previous to the past two years, the only bank failures many of us had experienced were those talked about by our parents or grandparents, or by watching George Bailey nearly lose his family’s savings and loan business in It’s a Wonderful Life. Of course, there was the S&L crisis in the 80s and 90s where more than 700 savings and loans associations failed, costing taxpayers the then unthinkable amount of nearly $125 billion. Comparing to today’s challenges, wouldn’t we all be thrilled with that small of a number, and how unsettling is it to know that ONLY $125 billion would make us all so happy!

The FDIC is shouldering a huge amount in our current state of affairs, precipitously balancing the stifling weight of the nearly 85 banks which have failed so far this year, and hundreds more which are in peril. With the $3.7 billion lost by US banks in the second quarter alone, the FDIC’s fund is at its lowest point since 1992 when the S&L crisis was at its peak. While Sheila Bair, FDIC Chairwoman, is saying no to borrowing from you and me at this point, what happens if this current crisis continues to drag along the bottom? Will it drag us down with it, as the government is us? Will the fear of no place is a safe place for your money cause more runs on the banks, such as George Bailey experienced?

With the FDIC forecasting spending up to $70 billion on replenishing insured accounts through 2013, we all face another potentially hefty bailout. Bair says don’t worry at this point, since she does not see the need to tap the US Treasury – not yet. The FDIC is searching for options – it will attempt to replenish the fund through additional bank fees and has also indicated it is considering allowing private investors to buy failed institutions, bending rules to reduce the cash required that private equity funds must maintain in an aquired bank.

In the end, we are all “protected” by the government, which is to say, we are protected by ourselves, as our accounts are insured up to $250,000. At some point however, the bailouts come with the bill collector. Hopefully we’ll have something left in our wallets instead of turning our pockets inside out to find that they are empty.

I look forward to hearing your feedback.

All my best,

Thomas J. Powell

.. is the title of the introduction of The Inside Job – The Looting of America’s Savings and Loans by Stephen Pizzo, Mary Fricker and Paul Muolo. A month ago Paul Krugman claimed that ‘Reagan did it’, and when you read the first few paragraphs you might understand why he thinks so:

President Ronald Reagan stepped through the tall French doors of the White House Oval Office into the bright sunlight of a lovely fall morning. Whispers and nudges rippled through the crowd, and a hush fell over the Rose Garden. A squad of Secret Service agents melted into the audience as Reagan, smiling broadly, strode across the lawn to the podium.

The president stood at ease for a moment and looked out over the assembled guests, beaming with pride and satisfaction. He had promised the American people that he would get government off their backs, that he would deregulate the private sector. Reagan had promised to remove government constraints on the accumulation of private wealth. On October 15, 1982, less than two years into his presidency, he had invited 200 people to witness the signing of one of his administration’s major pieces of deregulation legislation.

Reagan told the audience of savings and loan executives, bankers, members of Congress, and journalists that they were there to take a major step toward the deregulation of America’s financial institutions. He was about to sign the Garn-St Germain Act of 1982, which he said would cut savings and loans loose from the tight girdle of old-fashioned, restrictive federal regulations. For 50 years American families had relied on savings and loans to finance their homes, but outmoded regulations left over from the era of the Great Depression, Reagan believed, were preventing thrifts from competing in the complex, sophisticated financial marketplace of the 1980s. The Garn-St. Germain bill would fix all that, he promised.

At the conclusion of his remarks, and following enthusiastic applause, Reagan took his seat at a table surrounded by the bill’s proud political parents. He flashed a broad smile for the cameras and launched into the signing process. With each sweep of a souvenir pen, thrift regulations crumbled. It was an exhilarating moment for Ronald Reagan. The bill was “the most important legislation for financial institutions in 50 years,” he said. It would mean more housing, more jobs, and growth for the economy.

“All in all,” he beamed, “I think we’ve hit the jackpot.”

The speech of Ronald Reagan at the event is available online.

TB’s Quote of the Day: “In Pavlov’s famous experiment, a dog hearing a ringing bell began drooling as if food was present. In a bizarre parallel to the classic experiment, Jim Cramer announces “the bottom is in” every time he sees a housing chart.” –Charles Smith, forwarded by a friend…makes sense to TB!

…on the eve of options expiry the volume was just 1.08B shares, the fifth lowest volume of the year (the lowest, 856M was last Friday, a level not seen since 12/24/08). Prior to June 8 there had been just seven days with volume of less than 1.25B shares this year, or 250M less than the normal daily average. Options expiration is normally characterized by high volume but the last one was just 1.06B shares while March expiry (the last quadruple witching) was the highest volume of the year (2.47B shares) and one of the top ten volumes ever….while December’s was 2.42B shares!

Furthermore, since May 15 we have had ten sessions of less than 1.25B shares, nine of them since June 5^th  and only one of the days since has been above 1.25B shares – Wednesday’s 1.32B share day. Over this entire period Bank of America (BAC) has been at least 25% of total NYSE volume – without exception …consider the thousands of stocks in that index! Citigroup (C) has been 10-15% and some days combined volume has been over two-thirds the activity. This, folks, is not a market, it’s a lottery!

“Never short a thin market” – the best advice you will ever get, but with volatility low, a market that would be feeble or non-existent without BAC and C, and hedge funds having pared down their leverage and shorts, it seems perfect for a ‘hit and run’ short sale. Think of all the great military campaigns that would have been lost if they had followed conventional wisdom. It takes guts and if you are wrong you are labeled a fool, but that may just be the ticket here…what with all those wilting ‘green shoots.’ Because the other Wall Street saws “over any 20 year period the market has never lost value” (oh yes it has – when you adjust for taxes and inflation.), or “the stock market is always six to nine months ahead of the economy (right now it is like driving in a thick fog and someone tells you to turn left in 50 yards)….how do it know? The market is not a thermos! It is driven by the optimism, enthusiasm, ego’s, and greed of it’s many players…and they don’t have any more of a clue than you do and if the guru’s sound like they are all on the same page it is because they are long-only managers talking from position…what else can they do? …but you don’t have to listen to them, TB, or anyone else…simply think!

Is job growth just around the corner? Are debts paid down and a savings cushion built so that consumption can resume? Will wages rise to support renewed consumption? Has the American consumer finally figured out he or she doesn’t need a new car every two years, or another TV? Those are the engines of growth…and we don’t produce much either.

Remember that it won’t take much to drive this market down…sharply down, but not a retest of the lows…with the 40, 50, and 200 day moving averages as close together as the planes were parked at Pearl Harbor…not much at all and then they become major resistance! So do you want to watch the battle from the perspective of the troops on the ground or the pilots in their zeroes? You decide!

A parting thought: if volume is so thin that taking out BAC and C would reduce it to less than 1 billion shares a day, we have a major options expiration today, volatility has returned to the high end of the range of the past five years from a fear-driven spike to the stratosphere, and we haven’t even come to June 30^th yet, what will happen after July 4? Then we have the last day for T+3 settlement in the quarter next Thursday (hedge funds), quarterend on the following Tuesday, and June payrolls would normally be on Friday, July 3…but that is a federal holiday for July 4^th so it will be delayed a week…a little news can cause a big move when no one is home. Green shoots: BAH! Humbug! Oh, and don’t forget we have 2,5, and 7 year treasury note auctions next week…just to spice it up!

____________________________________________________________________________

Obama’s financial re-regulation plan shows just how desperate we have become. Not only do we not need to rearrange the deck chairs on this sinking ship of political wrongdoing, but it highlights just how futile it is. He is trying to eliminate just one agency, the Office of Thrift Supervision and immediately Barney Frank objected about all those thrifts that would then have to register as state chartered banks. When making the announcement the administration said they would have liked to eliminate more but would face a Congressional fight. This shows just how bad it is.

But why would Frank take on this challenge…hmmm…let’s see…he represents Massachusetts, which last TB looked is where Boston is…and so is OneUnited Bank. Never heard of it? Think back, when the banking crisis was going on, Maxine Waters ‘urged’ the Fed, along with Frank to get some minority bank input…so they held a hearing but only one of those banks was represented: OneUnited. Fed officials were outraged especially when OneUnited requested $50 million in TARP aid…they eventually received $12 million. Later it was disclosed, not by Waters, that her husband had been a director of the bank but was now only an investor ($250,000 or so). But what is Frank’s interest?…while it has branches in Los Angeles and Miami…which should send up all kinds of red flags alone…it is headquartered in Boston.  All politics is local! It is just run by Washington! Throw the bums out in the next election…all of them! Send a message to the survivors: start doing the people’s business!

Today will be interesting to observe…but you can leave after options expiration!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © June 19, 2009.

Does this sound like recent headlines?

Unfortunately, problems in the banking sector are not new in our system. The charts below show the Savings and Loans scandals of the 1980s, and how many banks closed due to problems stemming in part from relaxed regulations.

Conservative or liberal, we can all agree that taxpayers lose the most when greed is left entirely unchecked.

Good morning. Another week, another sell-off in the S&P. The good news is that the week was only down a little, about .3%, the bad news is that there was a 3.4% up day erased. The up day was caused by the announcement that the Obama administration was going to announce a so-called bad bank to take bad assets from struggling commercial banks, the subsequent sell-off was caused by glitches in that plan as well as increasing issues with the new stimulus package. For the month of January, the SPY was down over 8%, not exactly the way to start the year, or a new administration. The VIX, or implied volatility index, was down 5% on the week, from 47.27 to 44.84, but that is still rather high.

One continual driver of the bad news is the scary level of layoffs in virtually every industry, with the announced layoffs early last week close to 100,000. I think most of us realize that those numbers (along with the unemployment numbers due this week) do not count contract workers, some types of temporary workers, etc. that would make the numbers much worse. As an example, in the housing industry, virtually all self-employed general contractors, plumbers, carpenters, painters, etc. and real estate people on commission (virtually all) are nowhere to be found in the “official” numbers. The same would be true of contract IT people. It is true they are not counted whether working or not, but when the Labor Department says 2 million jobs were lost last year, the number of real people thrown out of “work” last year is probably way higher. Remember too that this is not 1973, 1958, or 1947, when the personal debt load was much lower. A lot of these people currently being down sized (Riffed, laid off, canned, pick the term of the particular recession) are being tossed into the abyss of huge indebtedness; student loans, mortgage problems maybe, possibly credit card debt, car loans, etc. maybe all held by the same institutions. I was not around in 1947, but I do know that in 1973 colleges charged a sane amount, meaning not anywhere near the student loan issues, there were no credit cards other than maybe a gasoline card, most people had put 20% down on their house, etc.

How about those banks? I was just reading an article last night about how divisive some of the panel discussions were in Davos, Switzerland, regarding worldwide opinion regarding our bankers. None other than Vladimir Putin (former KGB agent that former President Bush seemed to think had morphed into a boy scout of sorts) was leading the charge against western capitalism and its warts. It appears the only real U.S. Bank exec that showed was Jamie Dimon, of J.P Morgan/Chase, and he was put on the defensive the whole time. It does seem to me that the rest of the banks around the world were just as greedy and mis-managed as ours, but that would just be my opinion. Not to mention, again the postman seems to have lost my invitation to that conference, maybe next year.

Anyway, what is with the banks, and why does every day seem to bring about ten new solutions from every talking head that can grab a spot on TV? Again, it is all in the numbers. Read, if you can, an article by John Markman on MSN Money. In it John spells out the problems with the Bank balance sheets in very simple terms. At the beginning of 2007 the entire worldwide banking network had around $2 trillion in shareholder equity. It is probably fair to say that through mismanagement, greed, and being “competitive” (as Mr. Paulson would put it) these banks were probably right up against (or cheating) a roughly 10% capital requirement (meaning the combined assets were $20 trillion or more). They have collectively taken approximately $1.5T on write-offs so far, plus they are being forced to put on balance sheet all the “stuff” they somehow felt they could keep off, some real estate loans, leveraged investment vehicles, etc. The $5-10 trillion of the new stuff now on the balance sheet is causing another $.5-1 trillion in requirements, meaning that the roughly half a trillion the government has ponied up plus the half trillion from sovereign wealth funds still leaves them almost a trillion short. I don’t know when I have written something before where every number is in the trillions.

When you look at the numbers from that magnitude, and that simply, it is easy to see how it is a problem currently defying a solution. The numbers are huge, taxpayers are incensed at what they have been asked to do already, and think (accurately) that the regulatory sector is in over its head. The assets held by Royal Bank of Scotland exceed the total GNP of Great Britain, the assets held six months ago by Citigroup (C) exceeded $2T, and the total tax intake of the U.S. is barely above that, at $2.4T. Who were the morons that let these places get so big, and who bought the insane arguments “Why is big bad?” “Should we be penalized for growing?” “Think of the efficiency.”

Do I have a solution? Maybe. For one thing I would stop trying to hurry a solution. These banks have been technically insolvent for a while now, but Japanese banks were probably that way for over a decade, and Chinese banks have surely been that way for a while. It is not ideal, but as long as they are operating it is not a crisis either. Lower the capital requirements for a while, say for the problem banks the capital “goals” are 2% by the end of 2009, 4% in 2010, etc. Force the closing out of the crazy stuff, like credit default swaps, etc. Let the banks know they can operate normally with the reduced capital with some sort of government backstop, start the banking process (meaning normal lending) working. You can’t get it going by giving them hundreds of millions of taxpayer money, then saying it has to be kept in reserve. Things will still work at a lower capital requirement, for a while.

I think the solution is time, time and the effort to actually go through all the real estate loans in question and either adjust, write-off, affirm they are ok, whatever. I think the holders of this paper still do not know exactly where they stand, and they need to find out the exact numbers they are dealing with. In the Resolution Trust it was necessary to move the assets from the Savings and Loans because the insanely high interest rates (thank you Mr. Volcker) put the S&L’s out of business. The paper needed a new home, now it does not. Also, despite the idiots (I won’t say it), I mean the learned gentlemen on TV talking about the Resolution Trust in glowing terms; it was a cesspool of corruption and politics. The last thing we need is to transfer millions of properties to some governmental agency for distribution in some secret manner to the well connected at huge discounts. Doing that once in my lifetime is more than enough. Having said that, the banks in question have huge capacities for earning money; they will repair themselves over time. We need to watch them to make sure they are healing, and we need to encourage the growth of many new banks. The European model of a few large banks is broken; let’s go back to our old model of strong banks of all sizes.

If we can put the bank issue on hold for a while maybe we can concentrate on the rest of the economy. That is a whole different subject, maybe a subject for next week. What about investing? Looking at the current levels of corporate profits, I think we need to concentrate on those companies that seem to be handling the current situation in the black with eyes still forward. That is hard to do, as some companies are being affected in a dramatic manner. One of the managers of a Best Buy near me tells me sales were off almost 25% from last year in his particular store. I don’t think that was a company wide number, but it is a huge number to deal with and stay in the black.

At PTI we believe there is no question we need to stay protected in our investing, we need to take advantage of the high premium levels, and probably need to have some cash available. Obviously, if the market continues to fade we want to maintain our equity (or better) and be ready when any turnaround should happen. I do not think we are going to go down 8% per month all year. We’ll be ready when things turn positive.

Except for the past several years, Baltimore has always been an affordable town, and a town of homeowners. One reason was the savings and loan industry, which was brought over by East European immigrants. In the old ethnic neighborhoods, on every block you had a pub on one corner, and there would be a little saving and loan, or building and loan association, up on a second floor of a house. The men on the blocks could get together and pool their resources. They did it so that their children could buy a house in the neighborhood. It was a wonderful concept.

Comment on this post

The presidential campaign of Senator Obama is hitting back hard at the now 100 percent negative advertising and stump speeches by the McCain camp with a stunning new ad. A look back at Senator John McCain’s intimate relationship with Charles Keating, the infamous face of the Savings and Loan scandal. The ad reminds us of the Senate investigation of John McCain for improper pressure he brought upon investigators to spare Charles Keating and Lincoln Savings and Loan from their rightful wrath.

McCain was one of the ‘Keating Five’, a group of five Senators who pressured who they could, and at one point ganged up together in one fateful meeting with regulators in which they brought their full weight. They didn’t get away with it, though one of them wishes you would forget it by now. Charles Keating, when asked if his payouts to these Senators bought him influence said “I want to say in the most forceful way I can, I certainly hope so.”

Read more at KeatingEconomics.com

http://www.npr.org/templates/story/story.php?storyId=95149054

The problem with the banks started with deregulation, specifically the Financial Modernization Act of 1999 and the Commodities Futures Act of 2000. The first allowed bank mergers and unregulated banking business in stock markets, insurance etc. The second allowed over-the-counter derivatives freedom from the regulatory scrutiny of the Commodities Exchange Act of 1939. Both were Republican sponsored bills passed under a Democratic Administration, the FNMA of 1999 specifically supported by the Democratic US Treasury Secretary. Similiar deregulation was passed in 1982, Garn-St. Germain Depository Institutions Act, which deregulated Savings and Loans. Most remember the resulting disaster from bad mortgage loans. The current sub-prime loan debacle is similiar. Fueled by artifical stimulation in the form of post 9/11 liquidity from the Fed and an administration that encouraged fiscal irresponsibility, the housing asset bubble produced exotic loan originations that were securitized in the secondary market. These securities were tranched into billion dollar collateralized debt obligations and stamped AAA by the rating agencies (who incidentally were paid to rate them by the same people selling them), then sold as Mortgaged Backed Securites(MBS) with high yields to both a domestic and international market. What they were actually worth was difficult for both seller and buyer to determine due to their complexity, but they were AAA with high yield and, you could buy insurance. One of the over-the-counter derivatives deregulated in 2000 was the Credit Default Swap in which companies like AIG guaranteed the buyer of a MBS that for a premium AIG would gaurantee against any potential losses in the case of default. These securties themselves were bought and sold at increasing profit margins. This became the fastest growing market and today amount to almost 60 trillion dollars of global debt. In August of 2007 the housing bubble burst, as all asset bubbles eventually do, sending the initial shock waves through the financial markets. Investment banks, GSE like Frannie and Freddie, Commercial Banks, everyone literally had exposure to the Credit Default Swap market. Foreclosures set off the chain reaction in the credit markets as everyone realized no one could possibly pay out the Credit Default Swap securities. So credit started shrinking and it hasn’t stopped and it won’t until the housing market hits bottom, ergo the current legislation Congress is debating.

Sorry McCain, you can run but you can’t hide,  they’ll find ya always,  the Keating Five!

“McCain attack on Obama and “corrupt Chicago machine” triggers Mayor Daley “Keating 5″ response “     By Fran Spielman
Chicago Sun-Times City Hall Reporter

“You want to play rough? Let’s get it on.

A new ad from Sen. John McCain’s campaign accuses Sen. Barack Obama of being a product of the Chicago political machine. Convicted former Obama supporter Tony Rezko is among those referenced in the ad.

That was Mayor Daley’s angry message to Republican presidential nominee John McCain on Tuesday about the McCain ad that smears Daley’s brother in an attempt to tie Barack Obama to the “corrupt Chicago political machine.”

In essence, Daley warned McCain that people in glass houses shouldn’t throw stones. He was talking about McCain’s role in the so-called “Keating Five” savings and loan scandal.”

 LINK 

Treasury Secretary Henry Paulson has put forward a proposition to bail out the finance industry with a price tag at $700 billion.

The plan comes with near-dictatorial power granted to the executive branch, with a huge raid on the treasury with no means of paying for it, with a petulant demand of “Now, now, now!” coming from the Bush Administration, and with no plans for oversight (this time, actually, there’s a specific ban on oversight written into the bill).

No plan for an end game, an endless blank check for private companies who have well-placed friends, and more power for the executive branch, all sold by typical Republican hysterics that the sky will fall if their bill isn’t passed immediately… what does that remind us of? To me, it sounds a whole lot like the Authorization for Use of Military Force (AUMF), the bill that authorized the Iraq War.

And if Democrats prove to be as ineffective in defending basic economic fairness, in articulating the need for any bail-out to come with serious regulation, and in exercising their power in Congress to make sure that the plan the government goes forward with is sound as they were when it came to supporting the basic principles that told any thinking American that the war with Iraq was a bad idea right from the start, they’re going to cave once again right before all our eyes.

Personally, I never got over the AUMF and the absolute lack of foresight it represented in favor of sheer destruction, so that someone’s head, anyone’s head, could be brought before the American people as a sign that George W. Bush was doing what he could to prevent another terrorist attack. It was an utter failure of democracy, calling into question the very concept itself as it attempted to promote it, daring us to ask If this is what happens when democracy’s at work, then is it really such a good idea after all?

As much as Hillary Clinton supporters wanted everyone to just get over that vote, I can’t even begin to understand how someone could look past it. And as pundits who made careers cowardly cheer-leading the war on still get TV time and newspaper print space to stroke their egos and prove that they have the gall to tell us how foreign policy works, I’m coming to the conclusion that Americans just didn’t learn their lesson the first time around.

So here we are, presented with another crisis that demands another decisive solution that will once again work to the benefit of a small sector of the American population and to the detriment of just about everyone else.

This one doesn’t promise the murder of hundreds of thousands of people in a small country on the other side of the world that doesn’t pose a threat. We should at least count ourselves as blessed that the financial elite found a way to make bank off the government that doesn’t involve genocidal policies.

Fortunately, a few factors have changed since 2002 that’ll work in our favor here.

First, we have a Democratic majority in the House and a split Senate. Here’s Pelosi’s statement:

Congress will respond to the financial markets crisis by taking action this week in a bipartisan manner that will protect the taxpayers’ interests. The Administration’s $700 billion proposal does not include the necessary safeguards. Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation.

We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome. Democrats will act responsibly to insulate Main Street from Wall Street.

As we proceed to deal with this crisis, this is clear recognition that the party is over for the Bush Administration’s anything goes, failed economic policies that have damaged our economy, undermined the middle class and further pointed out the need for a New Direction.

Tough words. We’ll see how the Democrats hold up.

Second, while we’re in “everyone scream” mode, at least there’s not a significant number of Americans who think that they will die as a result of this crisis (even though this has the potential to kill more Americans through hunger, lack of medical care, and exposure than Iraq ever did). That decreases pressure and the likelihood that Congress will do something stupid to prove that they’re willing to do something.

Third, Bush hasn’t been harping on this one as long as he had Iraq. Up until just this month, he was still arguing that the fundamentals of the economy were sound. Phil Gramm was telling Americans that they were just a bunch of whiners. And any Republican with a platform saw it as his or her responsibility to let the American people know that if they had a problem, it was theirs and theirs alone. A small rough patch, but the economy would keep on moving.

Well, we know now that we’re most likely facing an economic disaster of Great Depression proportions, they’ve decided to turn course, acknowledge that there is a problem, and ask for money and power, supposedly to fix it.

For the most Machiavellian administration this country has seen, they should know that that’s just not how it’s done. These sorts of schemes take time, and they haven’t put in enough to make it happen.

This is a huge disaster, and there shouldn’t be a deal on the table, at all, that doesn’t include

1. regulation to prevent banks from taking on risky loans,
2. regulation to create transparency on the stock market,
3. regulation to reduce the size of finance firms,
4. a plan for exactly what the money’s going to be spent on (as much as I’m a French-lovin’ liberal, no bailouts for foreign firms. Sorry),
5. a source for the cash, and
6. a clear system for both Congressional and judicial oversight of executive actions.

We’ll see how the Democrats hold up. If there’s anything we learned back in 2002, it’s that they have to have a clearly identified counter-plan, a unified philosophical response to conservative arguments, and the necessary tools to get their message out.

Otherwise, they’re doomed to repeat the same mistake and keep on passing devastating legislation at Bush’s whim.

Until we find out what’s going to happen, here’s an angry rant from a Democratic Senator on the financial crisis:

Paulsen and congressional Republicans, or the few that will actually vote for this (most will be unwilling to take responsibility for the consequences of their policies), have said that there can’t be any “add ons,” or addition provisions. Fuck that. I don’t really want to trigger a world wide depression (that’s not hyperbole, that’s a distinct possibility), but I’m not voting for a blank check for $700 billion for those mother fuckers.

Nancy said she wanted to include the second “stimulus” package that the Bush Administration and congressional Republicans have blocked. I don’t want to trade a $700 billion dollar giveaway to the most unsympathetic human beings on the planet for a few fucking bridges. I want reforms of the industry, and I want it to be as punitive as possible.

Henry Waxman has suggested corporate government reforms, including CEO compensation, as the price for this. Some members have publicly suggested allowing modification of mortgages in bankruptcy, and the House Judiciary Committee staff is also very interested in that. That’s a real possibility.

We may strip out all the gives to industry in the predatory mortgage lending bill that the House passed last November, which hasn’t budged in the Senate, and include that in the bill. There are other ideas on the table but they are going to be tough to work out before next week.

I also find myself drawn to provisions that would serve no useful purpose except to insult the industry, like requiring the CEOs, CFOs and the chair of the board of any entity that sells mortgage related securities to the Treasury Department to certify that they have completed an approved course in credit counseling. That is now required of consumers filing bankruptcy to make sure they feel properly humiliated for being head over heels in debt, although most lost control of their finances because of a serious illness in the family. That would just be petty and childish, and completely in character for me.

I’m open to other ideas, and I am looking for volunteers who want to hold the sons of bitches so I can beat the crap out of them.

And if angry rants aren’t your thing, here’s an in-depth explanation of how this whole thing came about, that starts with the Reagan Administration, and works its way through the S&L crisis, the Keating 5, the Enron collapse, why California has Arnold as its governor, Phil Gramm’s history as a lobbyist, the sub-prime mortgage crisis, and pretty much anything else that led to this mess. It’s not as satisfying as swearing, but you’ll be glad you read it.

Spoiler: it’s the same people doing the same shit, over and over again.

By- Suzie-Q @ 9:30 AM MST

Three Times is Enemy Action

Daily Kos- by Devilstower

Sun Sep 21, 2008 at 06:03:41 AM PDT

“Once is happenstance. Twice is coincidence. Three times is Enemy Action.”
– Auric Goldfinger

James Bond’s wealthy nemesis may have had an obsession with gold, but he judged, quite correctly, that if people keep putting your plans awry, that was likely their intent.

In 1982, the same year John McCain entered the Senate, a bill was put forward that would substantially deregulate the Savings and Loan industry. The Garn-St. Germain Depository Institutions Act was an initiative of the Reagan administration, and was largely authored by lobbyists for the S&L industry — including John McCain’s warm-up speaker at the convention, Fred Thompson. The official description of the bill was “An act to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans.” Considering where things stand in 2008, that may sound dubious. It should.

Seven years later, the S&L industry was collapsing. What was the cause? Garn-St. Germain handed the S&Ls a greatly expanded range of capabilities, allowing them to go head to head with full service banks, but it didn’t give them the bank’s regulations. Left to operate in an anarchistic gray area, S&Ls chased profits, indulged in amazing extravagances, and cranked out enough cheap mortgages to fuel a real estate boom. They also experimented with lots of complex, creative — and risky — investments, even though they didn’t have the economic models to really determine the worth of the things they were buying. The result was a mountain of bad debts and worthless “assets.”  Does any of that sound eerily (or nauseatingly) familiar?

It wasn’t a foregone conclusion. In 1985, three years after the deregulation of the S&Ls, the chairman of the Federal Home Loan Bank Board saw that the situation was already looking shaky, with the potential to become much worse. He instituted a rule to limit the amounts and types of investments S&Ls could carry on their books in an effort to head off disaster. However, many savings and loans — among them Lincoln Savings & Loan Association of Irvine, CA, which was headed by a fellow named Charles Keating — promptly ignored these rules.

Now enters a familiar cast of characters. First to pop up was the universally beloved Fed-chief-to-be, Alan Greenspan. Greenspan argued against the loan board’s new rules, and persuaded Reagan to appoint one of Keating’s pals to the board to blunt the requirements. A quintet of senators, among them John McCain, began having meetings with both the management at Lincoln and the regulators at the loan board. ] Alan Greenspan also helped out with a letter to the regulators, asking that Lincoln be exempt from the new rules. With their help of Greenspan and their pet senators, Lincoln was able to stay in business an additional two years, at the end of which they failed — taking the life savings of 21,000, mostly elderly, investors with them.

How involved was John McCain? McCain and Keating had known each other since 1981 and had become fast friends. Of all the “Keating Five,” it was McCain who moved into the life of the Lincoln S&L chief. The two men vacationed together multiple times, with the whole McCain clan (babysitter included) heading out for Keating’s private Caribbean property on Keating’s private jet. McCain didn’t think to actually report these trips, or pay for them, until the investigators were breathing down his neck. And McCain took his payment in the form of more than just vacations. Keating and other members of Lincoln’s parent company padded McCain’s pockets with $112,000 in campaign contributions.

In John McCain’s biography, he called his meetings with Keating and regulators “the worst mistake of my life,” though from the text you’d think this was a spur of the moment decision, not something that McCain did repeatedly over a space of years. Still, you might think that a “worst mistake” would stay fresh in his memory.

It certainly didn’t fade quickly for the country. Following the S&L crisis, the Resolution Trust Company was formed to swallow up the debt of Lincoln and 746 other S&Ls gone wild, and taxpayers were left with the $125 billion bill. The resulting budget deficit forced cutbacks in other programs. The artificial real estate boom collapsed and housing starts fell to their lowest levels in decades. Finally, the whole nation settled in for a period nasty enough that three years later someone could still campaign around the idea “It’s the economy, stupid.”

Even so, by 1999 Phil Gramm — who had entered the Senate two years after McCain and quickly become the economic guru of the Keating Five maverick — put forward the Gramm-Leach-Bliley Act. This Act passed out of the Senate on a party line vote with 100% Republican support, including that of John McCain. (To be fair, the bill eventually passed again with a wide margin following revisions in the House.)

This act repealed part of the Glass-Steagall Act. This may sound like a bunch of Congressperson soup, but the gist of it is that Glass-Steagall was put in place in 1933 to control the rampant speculation that had helped cause the collapse of banking at the outset of the depression, and to prevent such consolidation of the banks that the nation had all its eggs in one fiscal basket.

Gramm-Leach-Bliley reversed those rules, allowing not only more bank mergers, but for banks to become directly involved in the stock market, bonds, and insurance. Remember the bit about how S&Ls failed because they didn’t have the regulations that protected banks? After Gramm-Leach-Bliley, banks didn’t have that protection either.

Gramm wasn’t done. The next year he was back with the Commodity Futures Modernization Act, which was slipped into a “must pass” spending bill on the last day of the 106th Congress. This Act greatly expanded the scope of futures trading, created new vehicles for speculation, and sheltered several investments from regulation.

As with both Gramm-Leach-Bliley and Garn-St. Germain, large parts of this bill were written by industry lobbyists. This famously included the “Enron Loophole” that exempted energy trading from regulation and was written by (big suprise) Enron Lobbyists working with Gramm. Not coincidentally, Senator Gramm, the second largest recipient of campaign contributions from Enron, was also key to legislating the deregulation of California’s energy commodity trading.

Thanks to this fortunate trifecta of Gramm-crafted legislation, Enron was able to create “EnronOnline” and trade electricity in California with absolutely no oversight or transparency. They quickly worked out how to game the system. Previously, there had been only one Stage 3 rolling blackout in the history of California. Within months, the system had been manipulated by traders to generate 38 such blackouts and wholesale electrical prices had gone up more than 3000%. Despite production capacity equal to four times the demand during winter, energy traders even engineered a blackout in mid-January.

During the confusion of these deliberate “shortages” and “price spikes,” the California administration of Gray Davis — blind to speculator manipulations because of the walls erected by Gramm’s legislation — was forced to sign energy contracts at enormous rates. There was little choice, because most of California’s public utilities were on the brink of bankruptcy from the rising wholesale prices.

In a single year, Gramm’s legislation allowed speculators to bring the state to its knees. Enron alone looted California of $11 billion. The manipulations of the energy market were also a major factor in Davis getting the hook, helped usher the governator into power, and they still have repercussions in California’s budget battles today. By the end of that year, the depth of Enron’s deception could no longer be hidden, and the whole company came crashing down in the largest bankruptcy in history — at the time. This brought more billions lost in mutual funds and pension funds across the country, and played a major role in the economic downturn of 2001.

But that was only the second act. The combination of Gramm-Leach-Bliley and the Commodity Futures Modernization Act was a toxic cocktail whose total damage was greater than the sum of its parts.

The first Act promoted bank buyouts and mergers that reached such an insane pitch that the average consumer could only keep up by tracking the changing names on their checks and credit cards. Mercantile buys Ameribanc and Mark Twain. Firstar buys Federated and First Colonial. US Bancorp buys Mercantile and Firstar. And, because it allowed brokerages and insurance companies to mingle with banks, the Act cemented a trend that was already (and illegally) underway in which all those terms had become rather quaint. Is Wachovia a savings bank, an investment bank, a brokerage, or an insurance provider? The answer is “yes.”

In allowing financial institutions to grow to Godzilla-sized proportions, Gramm-Leach-Bliley helped ensure that we would have financial entities that were “too big to fail.” Rather than choosing to enforce rules that kept these institutions apart, the deregulators chose to create monster bankeragasurances whose downfall (and existence) was enough to threaten the whole system.

But if Gramm-Leach-Bliley removed the limits on size and scope, these new institutions still needed fuel. With many financial transactions operating on razor thin margins, and increasing automation sapping the profits from trading of all sorts, they needed a new way to generate the funds required to swallow their brethren in the merged fiscal corporation pond.  For that, the Commodity Futures Modernization Act was a godsend.

Among those instruments which the CFMA sheltered from regulatory scrutiny was something called the “credit default swap.” A kind of insurance one bank could exchange with another, credit default swaps supposedly made it safe for banks to take on ever riskier forms of debt. The Act didn’t invent these swaps, though they were relatively new. Instead, by placing them in a state where they were not only unregulated but almost perfectly opaque, credit default swaps were turned into the perfect vehicle to fuel a Wall Street revolution. No one had any idea what these things were actually worth, they were traded “over the counter” without being administered by any exchange, and even the SEC could monitor their existence only indirectly.

Who would cheer for a new kind of financial instrument that was difficult to understand, invisible to regulators, and impossible for even the whizziest of Wall Street whiz kids to value? Guess.

More recently, instruments that are more complex and less transparent–such as credit default swaps, collateralized debt obligations, and credit-linked notes–have been developed and their use has grown very rapidly in recent years. The result? Improved credit-risk management together with more and better risk-management tools appear to have significantly reduced loan concentrations in telecommunications and, indeed, other areas and the associated stress on banks and other financial institutions.
–Alan Greenspan, 2002

Get that? Greenspan loved credit default swaps. He opined again and again that such instruments would be the salvation of the industry by spreading around risks. To the mighty Greenspan, both their complexity and their lack of transparency were good things, since swaps would only be handled by the big boys who knew how to play with fire.

When questioned about his support of Gramm’s legislation, John McCain called his friend (and by then, campaign co-chair) Gramm “one of the smartest people in the world on the economy” and pointed out that Greenspan also favored the acts Gramm and his coalition of lobbyists had authored. If both Gramm and Greenspan were on his side, McCain couldn’t possibly be in the wrong.

Except, of course, that he could.

From the beginning, there were plenty of people in the financial community whose opinion of these unregulated credit swaps was not as rosy as that of Gramm, Greenspan, and McCain. Chief among those speaking in opposition was SEC Chairman, Arthur Levitt. Levitt argued that what the industry needed was more transparency, especially when it came to complex instruments like default swaps, and he testified to this before Gramm’s Senate Banking Committee,.

“In my judgment, the risk of this regulatory approach is simply unacceptable for America’s investors.”
–Arthur Levitt, 1999

Gramm paid no attention.

Credit default swaps did allow the banks to share risks. So much so, that banks raced each other in an effort to find more risks. They made it possible for the down payment on homes to become 3%, 1%, 0%. Skip the credit check, avoid the employment requirements, damn the torpedoes, full speed ahead! We’ve got a credit default swap, we can do anything!

The encouragement and “safety” that credit default swaps provided made the sub-prime mortgage market possible. Just as with the deregulation of S&Ls in the 1980s, the market was suddenly flooded with easy credit. The result was a real estate boom, soaring home prices, and a plague of “Flip that House!” shows on cable.

As the banks piled up crappy mortgages, they heaped on ever more of the credit default swaps — and they still had no idea how to value the things. Worse, they began to trade the swaps themselves as if they were an investment, treating them like something worth holding instead of a big bundle of cartoon bombs whose fuses were already lit. Since very few loans were falling into default at the time, owning a default swap seemed like a way to collect fees without ever paying out. Banks wanted more, and more, and more.

A secondary market for trading swaps exploded into existence, and swaps were traded with absolutely no consideration for the nature or quality of the underlying investment. Swaps changed hands a dozen or more times, growing in “value” as they went. Worse still, no one regulated who could buy a swap, so it was (and is) perfectly possible for a company to acquire swaps that theoretically cover billions of dollars in loans, even if that company doesn’t have a red cent on hand to cover those swaps should the loans default.

How big did this market become? Here’s business correspondent Bob Moon and host Kai Ryssdal on American Public Media’s Marketplace from back in the spring.

BOB MOON: OK, I’m about to unload some numbers on you here, so I’ll speak slowly so you can follow this.

The value of the entire U.S. Treasuries market: $4.5 trillion.

The value of the entire mortgage market: $7 trillion.

The size of the U.S. stock market: $22 trillion.

OK, you ready?

The size of the credit default swap market last year: $45 trillion.

KAI RYSSDAL: That’s a lot of money, Bob.

As in three times the whole US gross domestic product, Bob. And the truth is that Moon probably underestimated. The unregulated and poorly reported credit default swaps may have actually passed $70 trillion last year, or about $5 trillion more than the GDP of the entire world.

So, are you starting to get an idea of just how big a genie Phil Gramm and his pals unleashed?

With some regularity over the last eight years, fiscal whistle blowers have tried to raise their hands and register a protest. Um, sirs? Is it altogether a good idea to run up debts exceeding all the assets it’s even possible to hold? But so long as no one actually had to pay off on the swaps, the party went on.  Even usually conservative (in the fiscal sense) companies like AIG started to worry that they were being left behind and leapt headlong into the swap pool.

Shortly after Greenspan’s departure in 2006, the Federal Reserve took the unusual step of issued a joint statement along with the SEC to warn about the risks associated with credit default swaps. But by that point, the damage was already severe. If swaps lost their value, most of those who had played the game would find their giant firms abruptly valued in pocket change. The only solution was to cover the problem with still more swaps and keep moving.

Then a funny thing happened. After years in which banks had handed out loans willy-nilly, guarded by the indestructible swap, people and companies started to really default on those loans. Credit slowed, home prices fell, and the whole snake started to eat itself tail first. Suddenly, credit default swaps were not sources of limitless cash. It turns out that an insurance policy — even a secret, unregulated policy — is occasionally expected to pay. Speculators started to look at the paper they were holding and for the first time realized it could all be worthless. Worse, it could (and did) represent a massive debt; one that no one had the funds to cover.

When Bear Stearns fell apart last March, it was only suspected that a big part of the effort in saving the giant investment bank was keeping their holdings in credit default swaps from unraveling and spreading to other institutions. Naturally, part of solving this problem involved creating a new credit default swap to cover Bear Stearn’s potential debt. But the all-purpose swap was starting to lose its power. Shortly after Bear Stearns went belly up, AIG reported the largest quarterly loss in the company’s history, taking a $11 billion hit on revaluing its holdings of swaps. The party was definitely coming to a close.

When AIG finally collapsed this week, there was no doubt about the primary cause of its failure. The previously well grounded company had “gotten itself involved with something called credit default swaps.” Point of irony alert: Arthur Levitt now serves on the AIG board… or at least he did until the government had to take over most of AIG to salvage the company from the very idiocy Levitt had warned of in 1999.

This week, the Bush administration announced the beginnings of a plan to salvage what remains of the financial markets. At first glance, it appears that the plan will consist mainly of creating a kind of “garbage pit,” a fund or group of funds — cousins of the Resolution Trust that was created during the S&L crisis — into which those people who have dabbled in bad debts can toss their problems. Only this time the cost to the taxpayers is at least $700 billion… and a big bite out of representative democracy.

The expansion of unregulated Savings and Loans in the 1980s brought on the collapse of that industry, a crippling of the economy, and left taxpayers holding the bag. Maybe that was only happenstance. Those pushing for the Garn-St. Germain Depository Institutions Act may not have known what they were doing.

The deregulation of the California electricity market, along with the protections provided to Enron through Phil Gramm’s lobbyist-written legislation brought blackouts, fiscal and political chaos, and left taxpayers holding the bag. But the people who engineered that event — people like Gramm and Greenspan — had already seen what happened with the S&Ls. They should have known better. Still, perhaps that was only coincidence.

The sub-prime mortgage crisis that has not only come so close to utterly destroying the markets, but has ruined the value of many people’s homes and left millions with mortgages they can’t pay, was also the outcome of the deregulation created by these men. The very predictable outcome.  When taxpayers are left holding the bag for $1 trillion this time around, it’s hard to believe it’s any sort of accident.

This is enemy action. This is a bullet deliberately fired into the economy by men willing to exercise their ideology regardless of the cost to taxpayers. Men who have every expectation that they can plunder the system again and again, while the public picks up the tab. John McCain may not have had his finger directly on the trigger, but he was there. He assisted. These were his personal friends and philosophical comrades. He may not be the high priest, but he has been a loyal acolyte in the cult of deregulation.

It may come as a surprise to the champions of deregulation, but nobody likes regulation. The restrictions that were placed on banks, S&Ls, and other institutions in the 1930s weren’t put there because someone thought it would be fun. They were put in place because they addressed problems that had just been clearly and painfully revealed. They were put in place because they were necessary.

It’s bad enough if John McCain didn’t know that. It’s far worse if he did.

It would be unwise to expect bank failures to remain at today’s low levels when investors are unsure about the viability of Fanny Mae and Freddie Mac in their present shape, despite the all but unlimited support of the US Government and Treasury that is behind them. There have not been that many failures so far, and Federal regulators have about 117 on their watchlist- rising from 47 to 90 to 117 during the past three quarters. Historically about 13 percent of those on their watchlist have failed on average, but there’s every reason to believe that this time the failures will be in excess of that. We’re going through the worst financial crisis of the past half century, and incidentally, the finances of both public and private sectors are arguably as weak as they have ever been.

So which are the banks at greatest risk of failure in the US?

Those regions where lending standards were laxest and irrational mortgage activity was greatest are at the greatest risk of suffering the worst levels of bank failure.Foremost among them is California, which already has had a number of failures recently. Indeed, if we look at a list of those banks that have recently failed:

1. IndyMac Bank, Pasadena, CA July 11, 2008

2. First National Bank of Nevada, Reno, NV July 25, 2008

3. First Heritage Bank, NA, Newport Beach, CA July 25, 2008

4. First Priority Bank, Bradenton, FL, August 1, 2008

5. The Columbian Bank and Trust, Topeka, KS August 22, 2008

Four of the five are seen to be in California, Florida and Nevada, which are also those that have suffered the worst of the mortgage crisis.

It’s not possible to know beforehand which banks are likely to fail, as this is often as much a function of trust and confidence, as much as of the fundamental strength of the bank’s balance sheet. There are, however, ratings systems available online that give an assessment of the strength of many banks in the US. It’s possible to check a list of 1-star rating banks for free at

http://www.bankrate.com/brm/safesound/select.asp?insttype=0

This service by bankrate.com is also one of the directions to which the FDIC redirects questions, without endorsing the content of their assessments for obvious reasons.

The recent failure of IndyMac has brought to light a troubling level of complacency about the FDIC itself : IndyMac was not even on FDIC’s watchlist.

Meanwhile, even though there is no likelihood of a housing market turnaround as long as unemployment is increasing, and credit contracting, banks have been continuing to build on their commercial real estate loan portfolios, in large part fulfilling commitments that have been made when times were a bit less turbulent. Region Bank(RF), M&I Marshall & Ilsley Bank(MI), Branch Banking & Trust Co. (BBT) all have very high loan to risk capital ratios.

It’s inevitable to ask the question then: Where will one have safety for his assets?

This is a severe financial crisis, and it’s likely to last for at least a year more.  It’s wise to distribute one’s savings in as many relatively high rated banks as possible, and, if past performance offers any guidance to the future, one should always prepare for the worst in a financial crisis of this scale.

Bank failures are unlikely to be limited to the US either. Just a few days days ago, Roskilde Bank in Denmark failed for the same reason: bad real estate loans.

.

A list of possible problem banks is here

Full Discloure, I like to use my visa debit cars for a lot things ranging from gas , groceries and buying pizza off the web but this story via The New York Times:  http://www.nytimes.com/2008/08/06/business/06theft.html?_r=1&ref=business&oref=slogin

Great another problem to worry about, 41million credit and debit cards numbers absconded in a nationwide fraud scheme. Review your bank and credit cards statements if you see irregularities also contact the credit bureaus, cross your fingers and pray for the best!

The Federal bailouts that began with the Savings and Loans during the George HW Bush Administration, touched down with the airlines after 9/11, threw 85 billion to AIG, then shoveled 700 billion to save our vaunted Financial Institutions, have now come to a three-way pile up on American automakers.   When the country’s leading capitalists are landing in Washington on a weekly basis asking for cash to keep their industries afloat, something’s wrong.  The United States and capitalism are supposedly merit-based institutions, or at least they used to be.  The Hangover asks:  Why is abject failure being rewarded?

Understandably, these financial institutions and industries need to stay viable or millions of Americans will be out of work or out of their homes.   That can’t happen.   But bailout dollars shouldn’t be handed over so that a sinking-into-the-muck status quo can be maintained.   When the AIG executives got their money, they spent nearly half a million dollars at a Califroina spa playing golf, stuffing their faces, and getting massages.  Will those running the auto industry and financial institutions prove to be so different? 

President Elect Obama stated:

“We have to have an auto industry that understands they can’t keep on doing things the same way.  If this management team that is currently in place doesn’t understand the urgency of the situation, and is not willing to make the tough choices and adapt to these new circumstances, then they shoud go.” 

But Obama has it backwards.  You don’t give the reward first and then demand the behavior.  Like spoiled children, our greatest capitalists need strict boundaries and discipline.  The Hangover proposes two simple “conditions” for companies who want ”bailout” money.  If they’re willing to comply, they get their dollars.

• A company that accepts bailout money must completely revamp its  upper management team (new CEO, new CFO, and a turnover of the majority of its Board of Directors).  They are the ones who brought that particular entity to the ground.   They don’t need another opportunity to screw up.  If you owned a business and your manager was losing your money in a swift and steady stream, would you keep him or her around?  Didn’t think so.
• The CEO of a bailed out company can earn no more than 40 times that of the average worker.   Excessive executive pay has skewed companies’ bottom lines as well as screwed workers and shareholders.  Even Fortune has stated that “executive compensation has become highway robbery.”   The Tampa Sentintel reported that in 1980, the average CEO earned $10 for every $1 earned by the average US worker.  In 2006, the  not-so-average-anymore CEO earned 430 times that same worker’s one dollar.   Instead of funneling executive pay into private jets, spa weekends, and bottles of ‘78 Lafite-Rothschild, make the companies reinvest in themselves.  And if those executives want to raise their own pay, all they have to do is take care of those beneath them. 

Of course, some may say that these proposed conditions smack of socialsim.  But it’s exactly what the industries are asking for.  Give the capitalists what they want.