Showing posts from January, 2009

Let Jeremy Stein Sort It All Out

Terrific news: Harvard economist Jeremy Stein is joining Obama’s team of savants who are trying to form a plan for dealing with the financial mess. I like this guy a lot. Check out this from the WSJ Real Time Economics site (the bolding is mine):

He advocated aggressive government audits of banks, aimed at separating solvent ones from insolvent ones. Once that was done, insolvent banks would be forced into closure or sale while solvent ones would be pushed to raise more private capital. In addition to dealing with the bad bank problem, putting the plan in place would remove much of the uncertainty in financial markets that the government’s ad hoc approach to banks thus far has helped instill.
Great stuff. The nationalization debate has heated up lately, with some justification as it becomes clear to everyone that many U.S. banks are insolvent. But how do you take over swaths of a banking system gracefully, effectively, without setting off a mass panic? I'm coming to the conclusion t…

A Writer of Our Time

John Updike died at the age of 76. The newspapers were full of laudatory obituaries. He was described as “kaleidoscopically gifted”, “intuitive” and “lyrical”. Mostly though, he was remembered as a “chronicler of the American middle class,” a writer who wrote about the Average Joe.

Chekhov, too, wrote about the average man, about the art students, civil servants, workers.

Chekhov’s “average man” stands for mankind. By tackling the concrete problem of individuals, Chekhov addressed larger issues facing men everywhere. That is what Sarte called littérature engagée or committed literature. Vladimir Kataev describes some of it characteristics in his competent Chekhov critique, If Only We Could Know!The point at which other writers would think they had completed their task – by making the hero break or intend to break with the social milieu, or by registering their protest against vulgarity and their support for humanity, culture, dignity and personal independence – is the very point at whic…

Mr. Geithner Issues a Directive

The most telling news of the day was Treasury secretary Geithner’s promise to curb the banks’ lobbying for bailout money. “Geithner Limits Lobbying for Bailout Money”, The New York Times informed its readers.

Recall that in October then Treasury secretary Paulson forced the CEOs of the banks to accept the bailout money. The Times reported:The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. Monday. To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry M. Paulson Jr. said they must sign it before they left.That was then.

Now the banks are lobbying for the money. Ordinarily, you would think that the bailout money would go to banks in need of capital; emergency help goes to those who need it. Ordinarily, the Treasury should easily determine which banks need the money. That should leave no room for influenc…

The Subject Matter of Finance

Among the mainstream press, FT’s Lex column offers one of the more consistently thoughtful business observations. This past Friday’s column noted that after the firing of “Mr. Fix-It” from BofA and the hiring of Parsons as the Citi chairman – both considered good news for very different reasons – the stock of both companies dropped. From this evidence, the paper concluded:
The truth is that coming and (popular) goings of bank executives are a side-show. The financial crisis is not discriminating on the basis of management quality. The economic forces unleashed by financial crisis are so powerful that leaders have to a great extent been reduced to mere spectators. In this backhanded way, and thanks to an unprecedented crisis, the FT finally recognized what the readers of this blog have always known, that the subject matter of finance is not people. It is capital in circulation.

There is more.

Financial crises that befall a financial system do not come from without. They are created from …

Why Was Lehman Allowed to Fail?

The question of why Lehman was allowed to fail had preoccupied me ever since the news reached me while on vacation.

That Lehman’s was the largest bankruptcy ever – with about $630 billion in assets – did not tell the full story. Lehman was a major prime broker and one of the largest players in the commercial paper market. Its notes were widely held by institutions of all stripes and there was a large and active credit default swap market linked to the company’s name. Additionally, the firm’s broker-dealer arm financed well over $100 billion a day in the tri-party market. These activities directly linked the firm to all the major banks, broker-dealers, pension funds, hedge funds, mutual funds and money market funds, to say nothing of thousand of small and medium size firms and municipalities. A place such as Lehman could not gently go into that good night even if it wanted to.

And it did not. On the news of Lehman’s bankruptcy on Monday, September 15, the short-term repo, interbank lendi…

Bush: Blissfully out of Touch Until the Very End

“The actions taken by my administration in response to the financial crisis have laid the groundwork for a return to economic growth and job creation, and they are beginning to show some early results,” President George W. Bush said in a letter to Congress that accompanied the annual Economic Report of the President.
Back in the 1980s cartoonist Garry Trudeau did a series of strips about the inside of Ronald Reagan’s brain. It was a spooky jungle of fused and drooping synapses, a no man's land of muddled thought. Sometimes I wonder what the George Bush brain would look like. A vast and empty desert of feel-good banality?

His administration is forecasting the U.S. economy to snap out of its slump in the second half of 2009. This prediction is most likely self-serving or cynical or both. Obviously, to preserve what he can of his tattered legacy, Bush would like us to believe we are poised for recovery. Then he can claim that his presidency took the body blow from the financial crisis,…

Wake up Washington!!!

This is a short entry as I sit and stew in frustration. Bank of America just got $20 billion more in federal funds and guarantees of support on $118 billion of assets. These bailouts will go on and on and on and on until Washington understands a very basic fact about this financial crisis:

The major banks in the U.S. are insolvent.

One more time: insolvent.

That's spelled I-N-S-O-L-V-E-N-T.

Nationalize them. Or let them perish. Just stop, please stop, dumping money into these bottomless pits.