Sunday, October 26, 2008

Senator Dodd Speaks of "Revolution"

The banking industry's "dirty little secret"

Probing question asked by a JPMorgan employee asked of an un-named JPMorgan executive during an October 17 employee-only conference call. From this morning's New York Times story:
“Chase recently received $25 billion in federal funding. What effect will that have on the business side and will it change our strategic lending policy?”
Here's the startling answer:
“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”
More from NYTimes reporter Joe Nocera's morning story:
Read that answer as many times as you want — you are not going to find a single word in there about making loans to help the American economy. On the contrary: at another point in the conference call, the same executive... explained that “loan dollars are down significantly.” He added, “We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” In other words JPMorgan has no intention of turning on the lending spigot.
Today's remarkable NYTimes story reveals what the reporter refers to as the banking industry's "dirty little secret":
Given the way, that is, that Treasury Secretary Henry M. Paulson Jr. had decided to use the first installment of the $700 billion bailout money to recapitalize banks instead of buying up their toxic securities, which he had then sold to Congress and the American people as the best and fastest way to get the banks to start making loans again, and help prevent this recession from getting much, much worse.
In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist.
In short, Congress and the American people were sold a bill of goods with the passage of the recently passed Emergency Economic Stabilization Act of 2008 ("Treasury Secretary Paulson's bailout bill"). Rather than using these massive infusions of taxpayer cash to unclog the credit markets, and to infuse liquidity into the U'S. credit system, the greedy recipients of the taxpayers' historically unprecedented largesse intend instead to use these monies to feather their own nests, and to facilitate further acquistions, mergers and consolidations.

This latest news is predictably going over like a lead balloon on Capitol Hill. This from Democratic Senator Dodd, when reporter Nocera asked the Senator what he was going to do if the loan situation didn’t improve:
“All I can tell you is that we are going to have the bankers up here, probably in another couple of weeks and we are going to have a very blunt conversation,” he replied.
He continued: “If it turns out that they are hoarding, you’ll have a revolution on your hands. People will be so livid and furious that their tax money is going to line their pockets instead of doing the right thing. There will be hell to pay.”
"Revolution," folks. That's the word now being used on Capitol Hill. So far all our federal legislature has done is to "roll over" and "beg."

We ask our gentle readers: Is there anyone here who's surprised by this latest development? Was it reasonable to expect that the same industry which brought on the current world economic crisis would suddenly begin to act in the public interest? Is there anyone here who actually believes that our Congress will have the guts to do anything about this?

Don't let the cat get your tongues, O gentle ones...

22 comments:

PPK said...

Not surprised here. Not a bit. Suppose the only thing I'm surprised about is that this tidbit of info actually made it to press.
How do we actually go about starting this "revolution"?
Quit asking for loans??
I would think that with all the foreclosures, defaults, likely credit scores plummeting, very few can qualify for a loan now anyway....unless banks are willing to take a risk on those who really can pay them back, just don't have a house to prove it. I wonder if credit scores are going to mean squat over the next year or two. I'll still try to keep mine where it's at, but damn....the folks that have nothing are now being told they can't expect to even be able to start over cuz the fat-ass bankers need our tax dollars (in ANY way they can steal them) to stay filthy rich at the top.
This sucks.

danny said...

Rudi,

You post a great article, but as you know, you and some of us wrote this is exactly the sort of thing that would happen, and bailing out fat cats is exactly what this bailout was for.

Now for the present prediction: There will be some little ups and downs, but this will get much, much worse.

So predictable.

THE SKY IS BEAUTIFUL BLUE.

No wait, I mean,

All is changed, changed utterly. A terrible beauty is born.

danny said...

Remember when I said watch what happens to pensions. But this article is too optimistic. Pensions are a thing of the past. Everyone will work until they drop, like they always have throughout history. Get ready for it. The article talks about public pensions. Private ones have the same problem.

US public pension funds face big losses
By Deborah Brewster in New York
Sunday Oct 26 2008 17:35

Public pension funds in US states are facing their worst year of losses in history, exacerbating existing funding shortfalls and putting pressure on state governments to shore them up.

In the nine months to the end of September, the average state pension fund lost 14.8 per cent, according to Northern Trust, a fund company. The loss has grown since, as financial markets slumped further in October. The previous highest loss for state funds was 7.9 per cent for the full year in 2002.

California's Calpers, the US's biggest pension fund, last week reported a loss of 20 per cent of its assets, or more than $40bn, between July 1 and October 20 this year.

State and local pension funds comprise a patchwork of 2,700 funds that manage $1,400bn on behalf of 21m employees, including teachers, firefighters and other municipal workers.

About 40 per cent are underfunded, meaning that they would not be able to pay the future pensions that employees have been promised. State governments have lifted pension benefits - a move that is politically popular - but have often failed to put in more money to pay for them.

Critics say the underfunding is worse than official data show. The calculation is based on an assumption of annual returns of 8 per cent, but few funds will reach that in the next few years.

All changed, changed utterly. A terrible beauty is born.

RudiZink said...

TURNING and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of Spiritus Mundi
Troubles my sight: somewhere in sands of the desert
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Reel shadows of the indignant desert birds.
The darkness drops again; but now I know
That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?

The Second Coming - Yeats

danny said...

Rudi,

Your Halloween face used to have burning flames in the eyes.

I always looked forward to it, like I look forward to turning off the lights and hiding in the basement when Donna and the kids go out trick or treating.

Yes, my life is full.

Good times; good times.

Skeets said...

This whole financial fiasco started with Fannie Mae and Freddy Mac. All Democrats on the committees in both houses fought against any controls on their lending policies requested by Chris Cox. There is plenty of blame for both parties on this issue, but the Democrats supplied the crucial element to prevent any controls on lending over a year ago. It is comical to watch Barney Frank and Chuck Schumer tapdance when this all came out last week. Now the Democrats are turning on Alan Greenspan to find a fall guy.

Curmudgeon said...

Skeets:

Give it a rest... 75% of the sub-prime mortgages were written by private banks and mortgage brokers, not public entities. This "it's all Fanny Mae and Freddy Mac's fault" is yet another one of the right's convenient myths. I should also not that FM and FM issued none, repeat none, of the mortgage-backed-securities or credit default swaps that came crashing down when the housing market did.

Be helpful, if we're going to get out of this mess and prevent its recurring, if we started off dealing with verifiable fact as the basis for discussion, rather than Rush Limpaw's political wet dreams....

RudiZink said...

"Remember when I said watch what happens to pensions. But this article is too optimistic. Pensions are a thing of the past. Everyone will work until they drop, like they always have throughout history. Get ready for it. The article talks about public pensions. Private ones have the same problem."

GM stops 401(k) payments

inside job said...

October 16, 2008
What Do You See?
By Nikki Alexander

How would your mind perceive the following sequence of events if you were watching this unfold in another country?

Supreme Court judges betray their oath and prevent votes from being counted in a national election to install an unelected president. (Coordinated nationwide election fraud provides him a second term.)

Nine months later a spectacular mass murder takes place in a major city that involves three skyscrapers imploding into their own footprints within ten seconds each, pulverizing all of the non-metallic constituents into a fine powder that covers the city. Evidence from the crime scene is immediately removed and the unelected regime obstructs investigation into the crime for over one year. Without evidence or trial, foreign patsies are blamed for the crime by a Commission appointed by the unelected president.

The unelected president and his regime relentlessly invoke the memory of this shocking event to justify:

The most radical reconstruction of the Government in fifty years;

Systematic destruction of civil liberties and constitutional protections;

Systematic transfer of government services and functions to private corporations;

Ongoing seizure and privatization of public assets by corporate and foreign entities;

Dictatorial seizure of unconstitutional Executive authority with presidential signing statements;

Government surveillance of citizens: phone, Internet, banking, medical records, library records;

Government infiltration, harassment and arrest of peace groups;

Arrest and murder of journalists; seizure of their equipment and film;

Government kidnapping, detention and torture of thousands of harmless citizens;

Wars of aggression perpetrated under false pretenses;

Nationwide detention camps constructed for future purposes;

Blackwater mercenary bases within the country’s borders;

Regional Fusion Centers used by police to collect information on every citizen;

Secret Government databases mark one million citizens as ‘terrorists;’

Military units deployed to control the civilian population;

Unconstitutional Presidential control of State National Guards and local police;

Dissolution of national sovereignty through secret agreements with transnational conspirators;

Relentless propaganda that misinforms the public through controlled media outlets;

The regime is filled with ideological extremists and political appointees who hold dual citizenship:

The dual citizen Attorney General refuses to denounce torture or enforce Congressional subpoenas;

The dual citizen Secretary of DHS is granted authority to waive all laws without judicial oversight;

The dual citizen who leased the demolished skyscrapers is awarded billions of dollars in insurance claims by the duel citizen Judge who concurrently forbade victims to file claims against the government;

The dual citizen White House Chief of Staff recruits Goldman Sachs colleague as Treasury Secretary; and

Trillions of dollars disappear from Pentagon accounts under the dual citizen Comptroller of the Currency.

Congress systematically destroys financial sector regulations that protect the public;

The unelected president declares authority to suspend the Constitution and take over financial institutions;

The Federal Reserve Chairman and Treasury Secretary encourage and protect Wall Street fraud;

Trillions of dollars in fictitious Wall Street derivatives fracture the country’s financial system;

Middle class savings, pensions and retirement accounts are eviscerated;

Middle class property is devalued and confiscated nationwide through mortgage and foreclosure fraud;

Perpetrators of the fraud are rewarded with billions of taxpayer dollars;

The Federal Reserve Chairman expands his authority in defiance of constitutional mandates;

The Treasury Secretary eliminates Goldman Sachs competition and consolidates its monopoly;

The Fed Chairman and Treasury Secretary use taxpayer loans to buy stock in private financial institutions; and

The national debt escalates to trillions of dollars as the currency collapses.

Taken as a whole does this look like random incompetence or a fascist coup d’etat?

Coup d’etat: a sudden decisive exercise of force in politics, especially: the violent overthrow or alteration of an existing government by a small group.

Skeets said...

Cro-Mag or Curmudgeon, The problem with you is that when anyone disagrees with your analysis they are some radical right winger. Some of us look at the facts and it is apparent you are not one of them.

From the New York Times

9 years ago the news was........................ September 30, 1999

Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers.

Curmudgeon said...

Skeets:

What I challenged, and what has become the right wing mantra du jour, is this: This whole financial fiasco started with Fannie Mae and Freddy Mac.

It's demonstrably not so, that it all began with FM and FM. That the FMs played a role in the meltdown, absolutely. That they played the primary role, or even the triggering role, just flat not so.

They had Alan Greenspan before a congressional committee hearing last week, looking into the meltdown. And Congressman Mica [R-Florida] was trying to peddle the notion that it was all FM and FM's fault. So the committee chair, Waxman, asked Greenspan flat out: were the two Macs primarily responsible for the meltdown in mortgages. He answered no. The other former Fed execs before the committee concurred. A role yes, the primary role or the start of it all, no.

It's a mess, we both agree, and understanding what happened and how it happened is vitally important. I presume we both agree on that as well. But simplistic bromides like "it was FM and FM" that caused it or started it don't help. And if I mis-attributed your politics, I apologize, but what you were arguing is at the moment the favorite talking point of the radio right about who to blame... next to Clinton of course.

Don't Vote Insane said...

"Is there anyone here who actually believes that our Congress will have the guts to do anything about this?"

Our leaders have let us all down and if any of you think that our good old boys from Utah, i.e. Hatch, Bennett, Bishop are going to "all the sudden" start acting for the public's interest then please enjoy all the pretty colors that make up your reality.

I'm sure most of us have heard what the definition of insane is. Well a vote for anybody currently in office or the party that was in control since the turn of the century, i.e. GOP. will be a vote for the same and will turn up no different results!

Wake up please and let us all start making changes both in our homes and who we send to Washington to represent us.

Skeets said...

Crum

I sadly agree that if Obama is the next president, he will have a daunting task on the major agenda items. If you think that having a democratic congress will be the magic bullet is folly. When we all realize that almost every member of congress is only interested in being elected and re-elected, will we understand why it will be very difficult to resolve all of the major issues in our country's unfinished business. (Healthcare, immigration, Social Security, this financial mess)

I give one example and it happens to be about the democrats, but I do readily admit this foolishness goes on with both parties on many issues.

In the late 1990s it became apparent to everyone that the Social Security program was in trouble. (We can assess blame later) When Bill Clinton suggested private accounts as a initial way to relieve the pressure, Reid and Pelosi could not have been more supportive of the idea. After the contentious election of 2000, and Bush wanted to implement the private account idea, it was suddenly a bad idea and "Dead on Arrival" with the democrats in congress.

If you recall your history, FDR established the Social Security program in the 1930s with the consent of Congress, but it was always a democratic party mantra for taking credit for this beginning (rightfully so). The reason that Pelosi and Reid fought the Bush effort is they did not want Social Security to be fixed or set on the road to recovery under a Republican administration. They didn't care that it should be done as quickly as possible, or a fix was badly needed, it was not going to be done with Bush in the White House. This is not people looking out for our citizens, it is a bunch of idiots (Republicans and Democrats) that only care about who gets credit for anything and who they can blame for everything. They have become so entrenched with their positions, and tied to their supporters, (Unions, Christian Faith, etc.) they cannot or will not use their common sense to put away this partisan bull crap and do what
is important for all of us.

Curmudgeon said...

Skeets:

As for this, If you think that having a democratic congress will be the magic bullet is folly, I neither think that, nor have I ever said it. Dems have porkmesiters, for example, who can go toe to toe with Stevens of Alaska without giving an inch. [Byrd and Murtha for example.] And my party's reputation for congressional spinelessness is both well known and well deserved.

But I'm not quite as sour on all members of Congress as you are. I don't believe the only thing all of them have in mind is their own re-elections. There are public servants [in the best sense of that term] in the House and Senate... not nearly as many of them as we would like, and need, but there are some. Too damn few, but some.

Now, on another matter: About my jumping to conclusions regarding your first post... you are right, I was wrong. I'd just been scanning blog sites [left, right and center] and had seen a passel of "Fammie Mae caused it all" posts on the radio right. And eight days out, I'm in full campaign mode. [That's an explanation, Skeets, but not an excuse.] I jumped to a conclusion wrongly and without evidence and I should not have. Again, my apologies.

Utah (D) said...

I think that Mr. Dodd should be the one worried about a revolution to remove him from office... considering he was head of the oversight committee for Fannie May and spoke out against more regulation on this and other financial institutions.

I am all for a revolution, its about time our government starts representing our interests and not their political agendas.

Skeets said...

Crum, no apologies needed. I like it when you speak out for what you believe, but both of us tend to use a shotgun approach to these emotional issues. No offense intended.

All that I want is a congress and president of either party that will put the people first instead of their partisan politics. A lost cause I fear.

ozboy said...

Skeets

Not if you elect Super Dell Schanze for Governor! He will guaranteed put the people first, hey he said so hisself. He, not being a regular politician, wouldn't lie, would he?

Monotreme said...

Ozboy:

If you don't agree with me on Superdell, you can just shove it up your bunghole.

ozboy said...

Mr. Monotreme

I have made an appointment with a proctologist and a bungologist and if they both concur I will try it, I'm always into something new and exciting.

Thanks for the suggestion.

Monotreme said...

Oz,

Wasn't my suggestion. I learned that wonderful turn of phrase from the Bungholemeister himself, SuperDell.

unbelievable said...

Apparently JPMorgan-Chase isn't the only bank using our taxpayer dollars to acquire other banks. MSNBC has a story about other banks doing the same thing, thus having the banking industry complete what looks like a taxpayer funded industry consolidation. Glad that "rescue money" is helping loosen up the credit market.

ozboy said...

Mr. Monotreme

There is apparently a lot we all could learn from the "Bungholemeister" SuperDell hisself.

I'm also going to check in with my local ENT specialist just in case I misunderstand you/SuperDell as to just what a "Bunghole" is. That way I should be safe whatever bodily orifice you'ze guys are talking about.

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