Gretchen Morgensen and Joshua Rosner's book exposes the central character of the great recession. His name is Jim Johnson and he ran Fannie Mae in the 1990's. He was the puppeteer who dangled Barney Frank and Chris Dodd to do his bidding. His henchman was Angelo Mozilo, his sponsor was Goldman Sachs and his victims are the American Tax Payer. What ever aspirations to greatness that James A. Johnson former CEO of Fannie Mae, Director of Goldman Sachs, Brooking Institute and The Kennedy Center of the Performing Arts had, this book thoroughly and irrevocably smashes it right now. This guy makes Bernie Madoff look like a Saint.
Besides marvelous character assassination richly deserved, this book makes very clear that "Government Sponsored Enterprises" such as Fannie Mae with one foot in government and the other in private enterprise is untenable. Fannie Mae took its unfair advantage of a government guarantee to lobby and secure additional advantages. It worked the books as shamelessly as Enron and Worldcom to enrich its executives. And it cynically got the ball rolling in a direction and speed that was sure to to end badly.
Tuesday, July 26, 2011
Sheila Baird interview with Joe Nocera NY Times Magazne
Hard to believe that there was a government regulator who got it.
“Do you really think they should have let Bear fail?” Asked Joe Nocera.
“Let’s face it,” Sheila Baird responded. “Bear Stearns was a second-tier investment bank, with — what? — around $400 billion in assets? I’m a traditionalist. Banks and bank-holding companies are in the safety net. That’s why they have deposit insurance. Investment banks take higher risks, and they are supposed to be outside the safety net. If they make enough mistakes, they are supposed to fail. So, yes, I was amazed when they saved it. I couldn’t believe it. When they told me about it, I said: ‘Guess what: Investment banks fail.’ ”
Saturday, June 11, 2011
Japan's Biggest Utility Faces Insolvency Risk
TEPCO, Tokyo Electric Power Company, is the on the verge of going under after failing so catastrophically to control their nuclear facilities that were swamped by the March tsunami on Japan. I mention this because an industry that managed to co opt its government, justice system and regulators as thoroughly as TEPCO did, finally destroyed it's shareholders. I believe it was management complacency that pushed short term decisions that ultimately bet the company's existence. Similarly BP's offshore drilling disaster came from complacent management which now risks the independence of the company and a good portion of its shareholders capital. Last year BP made a desperate high stakes deal with Russia which is now falling apart because of Putin's cavalier attitude over private property and the rule of law. I don't think it will be long before BP is bought by another major.
In both cases short cutting prudent precautions in spite of government regulatory and judicial approval did the company and its shareholders no good.
In both cases short cutting prudent precautions in spite of government regulatory and judicial approval did the company and its shareholders no good.
Blocking Elizabeth Warren
Joe Nocera's editorial today in the New York Times regarding resistance to Elizabeth Warren's nomination to the Consumer Financial Protection Bureau reveals the Republican's ideological conundrum, they express free market support for banks that are too big to fail. Mitch McConnell and most Country Club Republicans support starving the newly formed bureau and then let the concentrated banking sector, the large players not the home town banks, run wild with the consumer.
As Libertarian I am against the need for Dodd Frank and the new bureau being formed by Elizabeth Warren but only if the Too Large to Fail Banks are all split up into pieces that they become small enough to fail without harming our economy. It would be a great Teddy Roosevelt moment in Republican history if Mitch and his Senate colleagues would give up their efforts to block and or stall financial regulations and counter propose a sweeping culling out of duplicative financial rules, agencies and congressional committees along with a simple rule that any bank reaching a certain level of assets be required to split into completely separate entities. I doubt the GOP Senators, other then Rand Paul, have the ideological fortitude to wrap their arms around such a quid pro quo exchange when the bank lobby holds so much sway over the Republican Party.
As Libertarian I am against the need for Dodd Frank and the new bureau being formed by Elizabeth Warren but only if the Too Large to Fail Banks are all split up into pieces that they become small enough to fail without harming our economy. It would be a great Teddy Roosevelt moment in Republican history if Mitch and his Senate colleagues would give up their efforts to block and or stall financial regulations and counter propose a sweeping culling out of duplicative financial rules, agencies and congressional committees along with a simple rule that any bank reaching a certain level of assets be required to split into completely separate entities. I doubt the GOP Senators, other then Rand Paul, have the ideological fortitude to wrap their arms around such a quid pro quo exchange when the bank lobby holds so much sway over the Republican Party.
Wednesday, May 25, 2011
Why the GOP is blowing up
As an authoritarian intolerant party that appeals to the elderly the GOP can not square losing a Republican stronghold in upstate New York because of Congressman Paul Ryan`s Medicare plan. They are going to cave on entitlements to keep their hold on a dying constituency.
Ron Paul because of his Libertarian ideology attracts the young, tolerant and fiscally conservative voter, the future electorate. I predict that he will do very well in 2012. Good enough to give the GOP a Goldwater catharsis that will lay out the party`s ideological framework for the future? Let`s see.
Ron Paul because of his Libertarian ideology attracts the young, tolerant and fiscally conservative voter, the future electorate. I predict that he will do very well in 2012. Good enough to give the GOP a Goldwater catharsis that will lay out the party`s ideological framework for the future? Let`s see.
Thursday, May 5, 2011
Republicans need a catharthis
Where would we be if the the Republican Party were to win the 2012 presidential election? I put to you that the managerial class failed so miserably during the Bush Administration that the GOP does not have the ideological compass to take over the helm after four short years. They suffer from a muddle of authoritarian views that lead us to war and economic crisis in the previous decade.
To my mind the dichotomy of Rand Paul and Mitch McConnell is one that Republican's have to resolve. One is the Tea Party standard bearer and the other is quite frankly, King George the 3rd of England, the conservative that sparked the revolution.
To my mind the dichotomy of Rand Paul and Mitch McConnell is one that Republican's have to resolve. One is the Tea Party standard bearer and the other is quite frankly, King George the 3rd of England, the conservative that sparked the revolution.
Wednesday, May 4, 2011
Co-opted Regulators
Tokyo Electric apparently has had its way in Japan for the past few decades and now you can see how one small concession leads to another until you have a concentration of six Nuclear Power Plants built in a small city in North East Japan that suffered a massive tsunami only a short eighty years ago. I say short because in actuarial terms I believe you look at events possible within a hundred years. Possibly the nuclear time horizon should be more like five hundred years and I am not anti nuke.
BP's oil rig disaster was regulated by a co-opted agency whose name escapes me but who never the less proves the point that depending on regulators who really have no skin in the game is futile. I know that we are considered a litigious society but as a Libertarian I prefer private market solutions such as performance bonds and the court system to redress a harm committed.
The fact that the Congress has not taken off the $75 million dollar liability limit for offshore oil drillers is an indication of how powerful the oil lobby is. Banks with an even bigger lobby make sure no proposal to limit the size of our bank's ever sees the light of day.
Japan's earthquake and subsequent tsunami were devastating enough, but to have a major bulkhead of the infrastructure fail so completely in the hour of greatest need is the true calamity. To have the co-opted regulators who failed so miserably in protecting Japan re-assure its citizens, especially it's children, to remain in a nuclear hot spot is the final insult. I understand the Japanese character is stoic but their treatment by their government provokes revolution similar to the Congress's lack of action against the oil and bank lobbies.
BP's oil rig disaster was regulated by a co-opted agency whose name escapes me but who never the less proves the point that depending on regulators who really have no skin in the game is futile. I know that we are considered a litigious society but as a Libertarian I prefer private market solutions such as performance bonds and the court system to redress a harm committed.
The fact that the Congress has not taken off the $75 million dollar liability limit for offshore oil drillers is an indication of how powerful the oil lobby is. Banks with an even bigger lobby make sure no proposal to limit the size of our bank's ever sees the light of day.
Japan's earthquake and subsequent tsunami were devastating enough, but to have a major bulkhead of the infrastructure fail so completely in the hour of greatest need is the true calamity. To have the co-opted regulators who failed so miserably in protecting Japan re-assure its citizens, especially it's children, to remain in a nuclear hot spot is the final insult. I understand the Japanese character is stoic but their treatment by their government provokes revolution similar to the Congress's lack of action against the oil and bank lobbies.
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