Wednesday, May 6, 2009

Bare knuckles crypto-capitalism

I hope this kind of thing stops soon.  It’s not helping.  More evidence of suboptimal thinking during a panic by those who seem to have forgotten that they are not above the rule of law (and isn’t that what bothered people about the last administration’s conduct?).  More evidence according to my working hypothesis of increasingly authoritarian rule during the decade before the big crack-up.  The simplest way to clean up the financial system would be to require full on-balance-sheet disclosure of assets and liabilities, and to cap financial institution size at a level significantly less than too-big-to-fail.  And of course, bring back Glass-Steagall.  (If all the derivative crap were disclosed, that in itself would go a long way to cleaning up the mess, with or without Glass-Steagall.)  But will Larry Summers allow us to do this?  Doubt it.  The elite get to keep their cake and eat it too.

Via: New York Times - As Investors Circle Ailing Banks, Fed Sets Limits – Vultures circling the banks, will Cool Hand Ben be able to ward them off?

Via: Independent Accountant – alleged [ignorant] criminality of Paulson and Bernanke

Ken Lewis, Whistleblower?

"[Fed] Chairman Ben Bernanke and then-Treasury Department chief Henry Paulson pressured Bank of America Corp. to not discuss its increasingly troubled plan to buy Merrill Lynch & Co.--a deal that later triggered a government bailout of BofA--according to testimony by Kenneth Lewis, the bank's chief executive. Mr. Lewis, testifying under oath before New York's attorney general in February, told prosecutors that he believed Messrs. Paulson and Bernanke were instructing him to keep silent about deepening difficulties at Merrill, the struggling brokerage giant. ... Under normal circumstances, banks must alert shareholders of any materially signifcant financial hits. ... Disclosing losses at Merrill--which eventually totaled $15.84 billion for the fourth quarter--could have given the BofA's shareholders an opportunity to stop the deal and let Merrill collapse instead. ... 'It wasn't up to me.' Mr. Lewis said. The BofA chief said he was told by Messrs Bernanke and Paulson that the deal needed to be completed, otherwise it would 'impose a big risk to the financial system' of the US as a whole. ... A person in government familiar with Mr. Bernanke's conversations with Mr. Lewis said Wednesday that the Fed chairman didn't offer Mr. Lewis advice on the question of disclosure. Instead, Mr. Bernanke suggested Mr. Lewis consult his own counsel. Mr. Paulson repeatedly told Mr. Lewis that 'the US government was committted to ensuring that no systematically important financial institution would fail.' ... In the transcript reviewed by the Journal, Mr. Lewis didn't say he was explicitly instructed to keep silent about the losses at Merrill. But his testimony indicates that he believed the govenment wanted him to remain silent. ... By keeping mum, the CEO of one of the biggest US banks appeared to set aside a basic tenet of American-style finance--that, above all, companies must disclose marterial informantion to shareholders and potential investors. 'Regulators are supposed to tell you to obey the law, not to disobey the law,' said Jonathan R. Macey, deputy dean of Yale Law School, 'If you're the CEO, your first obligation is not to your regulator, it's to your institution and shareholders", my emphasis, Liz Rappaport at the WSJ, 23 April 2009.

"The cavalier use of brute government force has become routine, but the emerging story of how Hank Paulson, and Ben Bernanke forced CEO Ken Lewis to blow up Bank of America is still shocking. It's a case study in the ways that panicky regulators have so often botched the bailout and made the financial crisis worse. ... In order to keep Mr. Lewis quiet, they all but ordered him to deceive his own shareholders. And in the name of restoring financial confidence, they have so mistreated [BofA] that bank executives everywhere have concluded that neither the Treasury nor the [Fed] can be trusted. ... But Washington decided that America's financial system couldn't withstand a Merrill failure, and that BofA hasd to risk its own solvency to save it. So then-Treasury Secretary Paulson, who says he was acting at the dcirection of [Fed] Chairman Bernanke, told Mr. Lewis that the feds would fire him and his board if they didn't complete the deal. ... But since the government didn't want to reveal this new federal investment [TARP] until after the merger closed, Messrs. Paulson and Bernanke rejected Mr. Lewis request to get their commitmnent in writing. 'We do not want a disclosable event,' Mr. Lewis says Mr. Paulson told him. 'We do not want a public disclosure.' Imagine what would happen to a CEO who said that. ... The merger closed on January 1. But investors and taxpayers had to wait weeks to learn that the government had invested another $20 billion plus loan insurance in BofA, and that Merrill had lost a staggering $15 billion in the last three months of 2008. ... But it is the Merrill deal that raises the most troubling questions. Evaluating the policy of Messrs. Bernanke and Paulson on their own terms, this transaction fundamentally increased systemic risk. In order to save a Wall Street brokerage, the feds spread the risk to one of the country's largest deposit-taking banks. ... Instead they transplanted the Merrill risk to BofA shareholders, the bank's depositors and the taxpayers who ensure those deposits. And then they had to bail out BofA too. ... Mr. Paulson told Mr. Cuomo's investigators that he also kept former SEC Chairman Christopher Cox out of the loop while forcing BofA to rescue Merrill. ... At the next meeting on January 8, a week after the merger had closed, the minutes again make no mention of either regulator telling their colleauges that they had committed tens of billions of dollars. Yet the minutes helpfully note that among the topics discussed were 'coordination, transparency and oversight'," my emphasis, Editorial at the WSJ, 27 April 2009. […]

Via:  naked capitalism

New Allegations Of White House Threats Over Chrysler Clusterstock (hat tip reader Bruce). Wall Street has gotten so piggy that up to a point, I'm not bothered by a show of force back. Without having a bit more detail, it's hard to know whether Team Obama stepped over the line. Remember, J, Edgar Hoover supposedly had dossiers on everyone who counted in America (recall the public had more privacy than it has now), and Nixon had an enemies' list. DC is more thuggish than we like to believe.

New Allegations Of White House Threats Over Chrysler

John Carney|May. 5, 2009, 12:33 PM|comment153


Tags: Economy, Chrysler, White House, Barack Obama, Politics, Hedge Funds, Bankruptcy, Bailout, U.S. Government, Treasury

Creditors to Chrysler describe negotiations with the company and the Obama administration as "a farce," saying the administration was bent on forcing their hands using hardball tactics and threats.

Conversations with administration officials left them expecting that they would be politically targeted, two participants in the negotiations said.

Although the focus has so been on allegations that the White House threatened Perella Weinberg, sources familiar with the matter say that other firms felt they were threatened as well. None of the sources would agree to speak except on the condition of anonymity, citing fear of political repercussions.

The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking "end justifies the means" group they have ever encountered.  Another characterized Obama was "the most dangerous smooth talker on the planet- and I knew Kissinger." Both were voters for Obama in the last election.

One participant in negotiations said that the administration's tactic was to present what one described as a  "madman theory of the presidency" in which the President is someone to be feared because he was willing to do anything to get his way. The person said this threat was taken very seriously by his firm.

The White House has denied the allegation that it threatened Perella Weinberg.

Last week Obama singled out the firms that continue to oppose his plan for Chrysler, saying he would not stand with them. Perella Weinberg says it was convinced to support the plan by this stark drawing of a line between firms that have the president's backing and those that did not. They didn't want to be on the wrong side of Obama. Privately, administration officials have expressed confidence that other firms will switch sides for this reason.

These allegations add to the picture of an administration willing to use intimidation to win over support for its Chrysler plans--and then categorically deny it.

1 comment:

  1. "Contradictions in capital" does not mean that the workers rise up in revolt. It means that capital continually changes the rules - drastically so in a crisis. Don't expect the old rules to EVER come back - get used to it.