And no, it is not hyperbole to say that the banksters are worse than America’s most celebrated crime families:
Had AIG proceeded to an ordinary bankruptcy, had the company’s downfall happened via normal market procedures, Goldman might have gotten 40, 50, maybe 60 cents on the dollar. If that! Instead it got completely paid off, among other things because its connections to the government actually incentivized it to cripple a company to which it was exposed to the tune of billions.
Second, the non-punishment of Friedman just stands out like a hairy, golf-ball-sized mole on the face of the American capital markets. No question about it, it’s interesting that Galleon and Raj Rajaratnam are getting perp-walked by the FBI (note that it’s the FBI, and not the castrated and seemingly completely captive SEC, that’s going to be pushing these enforcement actions). Galleon isn’t small potatoes and from what I understand there are other hedge funds with even higher profiles that may fall later on. These are surprising and meaningful moves and and it suggests that the enforcement community is not yet completely corrupted.
But Goldman’s continued impunity leaves a mighty stink-cloud over American business, no matter how many Raj Rajaratnams get dragged off to jail.
Gambino and Lucchese got nothing on these guys.
cleek
odd how the only journalist, apparently in the entire world, who’s making any noise about this at all, is Taibbi.
it’s almost as if the rest of ’em know better than to go after the Captains Of Finance.
geg6
@cleek:
Seriously. But I must give a hurrah to McClatchey. Damn, that article yesterday was some fine and awesome sauce.
http://www.mcclatchydc.com/227/story/77791.html
kommrade reproductive vigor
You speak as though there’s difference, Mr. Cole.
Comrade javafascist
Be thankful they never went Galt. Imagine how much worse off we’d all be if we didn’t have Goldman Sachs boots to lick.
Xenos
Galleon captured the SEC, which was too weak to protect it.
GS captured the Treasury Department, which appears to be strong enough to tell the rest of the government to get screwed.
The Moar You Know
@geg6: Shit, you beat me to it. That article was great. Made my blood pressure shoot up about 60 points, but it was great.
I think it’s a fairly reasonable thing to say that GS may be the biggest threat our nation faces at the moment.
beltane
Thanks for continuing to make my day. What we are watching is the fall of the American-style capitalism we all grew up with. Spectacular, isn’t it? I have no idea what’s coming next, but what we have now is not sustainable in the long term.
Brick Oven Bill
Here is America’s financial system:
1. America sells twelve figures of debt each month.
2. The demand has dropped as people are understanding the game; so
3. America buys its own debt; and
4. Lends it out to banks at next to zero interest; who then
5. Lend it to others at some given interest; and
6. Pocket the difference.
The end-game is hyper-inflation, and the collapse of the social safety net. This will very likely get a lot of people killed. And is way worse than Bernie Madoff and ENRON put together, times many hundred. Two years ago, I would call anybody who called this deliberate crazy. Now I will call it likely deliberate.
Bankers cannot be their own police. Geithner policed Wall Street. Geithner. Bankers are the ones who picked him. Figure that one out.
Therefore, I call for the United States Marine Corps Drill Instructor Association to nominate a team of twenty bad-asses, and the coalescing Tea Bag movement garner the appropriate professional Talent from within their ranks, to join forces and do a truly independent assessment of these banking institutions, and the Federal Reserve. In the ideal world, this would be sanctioned by the President.
And then bring the accused to Xe, to devise a system of justice, somewhere in Egypt.
GReynoldsCT00
Lovin’ my pie filter….
Brian J
Isn’t that a good thing? Unless the break from this nonsense involves even worse unemployment and all its accompanying problems, the sooner it ends, the sooner we can return to something normal.
Violet
Oh, wow. BOB’s back? When did his ban get lifted?
@beltane:
Yep. What we’ve got now in no way resembles the mythic 1950’s to which the teabaggers ache to return. Yet somehow in their worldview this current setup must be upheld at all costs. What ensues will be meltdown. How it happens, I’m not exactly sure.
beltane
@Brian J: It could be a good thing, or it could be a bad thing. I tend to be a pessimist by nature. As bad as things are now, they could still become much, much worse.
soonergrunt
@Brick Oven Bill: Marine Corps Drill Instructors? O RLY?
Give them over to
BlackwaterXe? The people who sell paramilitary capability to the highest bidder?What is it with wingtards and their fascination for using military force for every problem? The only thing worse is using contracted military force for every problem.
Christ, what was childhood like? “Dad, I can’t open this jar of pickles!” “Well, just shoot it, son!”
And weren’t you banned?
Brian J
In what way are you specifically referring to?
Ailuridae
@Brick Oven Bill:
How/Why is this poster unbanned?
Also, here are the chances that America will see hyperinflation in the next decade: 0%. Not 0.1% or 0.01% but 0 %. Either you understand macroeconomics or you don’t. If you are offering up “hyper-inflation” as a reasonable scenario, you simply don’t understand macroeconomics.
I love claims like “demand for America’s debt has dropped” that are both false and readily falsifiable. You can really go and actually see US debt being bought if you want and there are no shortage of buyers at a great price for the government.
Sammy
FWIW, While inept in a lot of things lately, the SEC does not/cannot initiate criminal proceedings, they can only initiate civil proceedings which is why the Feds indicted Raj.
Brick Oven Bill
Belthane says: American Style Capitalism
American-style capitalism would be some plumber working hard as an apprentice, saving his money to buy his own tools, putting out his own shingle, developing a good name, and then maybe having twelve guys working for him, retiring, and then driving around slowly in Florida as an old man, pissing people off.
This system results in quality indoor plumbing, and is good.
Do not confuse our corrupt banking system with American style capitalism. I believe the attempt to paint the two together is another scheme of the smart Maoists behind the scenes in this Administration.
Wall Street profits on the backs of other people’s work through risky mechanisms that they devise to benefit themselves, while transferring risk to the taxpayer. This is the thing that needs to end. Not Joe the Plumber retiring to Florida after a few decades of hard work, providing for us quality indoor plumbing.
Put your trust then in Geithner, soonergrunt. I’ll stick with the Teabaggers.
El Cid
Commoners who rob people using guns and knives are evil criminals for whom any punishment is too gracious.
Elites who rob entire generations using politicians and tax dodges and lawyers, however, are honored citizens for whom any yielding is insufficient as if we fail to please and supplicate them enough, they will take their prodigious talents elsewhere, or perhaps stop their productivity altogether, going Galt.
For the ideology of Reaganite anti-New Dealism and the pure greed of our uppermost classes, we just spent the last 30 years making sure that trillions could simply be robbed from our financial system.
And we make sure that the blame gets put on Jimmy Carter, CRA, ACORN, and anyone else who either is or seems to closely connected to black people and other colored folks.
El Cid
The example of a plumber training as an apprentice and then hiring workers predates capitalism, which is an economic system and not simply the presence of any sort of market exchange whatsoever. A lot of human history preceded capitalism, and yet lots of people worked, bought stuff, sold stuff, hired workers, created companies, and the like.
Brian J
This sort of thing, where Goldman Sachs quite literally taking houses away from people when they are struggling by getting involved with subprime lenders, seems much more infuriating. I understand why they are doing it, I guess, but perhaps someone with a better grasp of the economics of the mortgage market can tell me why they seem so reluctant to work with people. (Maybe they are in fact doing that except when it’s entirely hopeless, but it’s not clear that this is the case.) Is it that much better for their bottom line to uproot people who have suffered hardships and high interest rates than it is to give them a break and but possibly make slightly less money for a month? Are they making that much less money overall because of this? Isn’t it better for the economy as a whole if there’s less disruption in peoples’ lives, and thus better for Goldman Sachs, too?
J. Michael Neal
Taibbi is a dipshit who is completely out of his depth. I’m not going to read the fucking article, because John’s excerpt has two bits that show that Taibbi has no idea what he’s talking about.
No. The reason that Goldman got paid off is because the AIG mess had turned into a foreign relations crisis. AIG was so in hock to European banks that the European banking system would have been crushed had it been allowed to go into bankruptcy. All of the European governments let the US know that AIG had to be rescued. Once that determination was made, there was no legal way to bail out the Europeans without also bailing out Goldman. You can’t decide that AIG gets to honor some contracts and not others.
This is the one that demonstrates that Taibbi really has no business discussing financial issues until, he can be bothered to learn even the basics of the subject. The reason that the FBI is prosecuting this case and not the SEC is because the SEC has no jurisdiction over criminal prosecutions. It can only bring civil actions. *All* cases that are considered to justify an actual prosecution are handed over to the Justice Department. (Not the FBI, actually, though they do help in the investigation.) That Taibbi doesn’t know this just indicates that he should go back to doing whatever it was he was doing before he stuck his nose into this issue.
I don’t dispute the basic thesis that the folks at the major financial institutions are greedy fuckers who deserve to be kneecapped. However, there are plenty of writers out there who actually know what they are talking about and deserve to be read on the subject. Yves Smith is near the top of the list. Matt Taibbi’s pieces on the subject are bird cage liner.
ruemara
@Brick Oven Bill:
Why the fuck are you still breathing all over Balloon Juice? Isn’t a time out good for longer than a few days?
J. Michael Neal
The biggest (justifiable) reason is that mortgage workouts almost never work out. The overwhelming percentage of homeowners who have their mortgage restructured are back in default within two years. It’s cheaper for the lender to just foreclose than go through the expense of a workout just to foreclose a short way down the road. I’d also argue that, in many cases, the homeowner is better off getting foreclosed on right away than spending another two years slowly sinking.
danimal
I thought that was some fine snark parodying a troll. Even laughed a bit. Then I looked at the author’s name and realized it was a serious statement (assuming BoB isn’t a parody troll all the time).
beltane
@Brian J: My husband spent his high school years in Venezuela in the late 1980’s as the son of an executive of one of the world’s largest corporations. It was like paradise for him. Unfortunately, for the vast majority of Venezuelans it was something near the opposite of paradise. Old classmates of his that he still keeps in touch with still have no understanding of why Chavez came into power. After all, Venezuela was paradise.
JackieBinAZ
fixed
Napoleon
@J. Michael Neal:
Actually yes you can, buy/assume the contracts with foreign governments/banks then pay them off at 100% leaving the remaining contracts with the rotting corpse of AIG. That would have been perfectly legal.
LoveMonkey
@Brick Oven Bill:
Ah, a reveal. Joe the Plumber will provide us with quality plumbing?
In the same way that Republicans in general have ramped up the quality for us lo these last three decades or so?
Good spoof requires attention to detail, Bobster. Don’t go lazy on us.
John Sears
The Mafia has more shame because the mob is always at risk of going to jail, if they get too high profile.
Since Goldman has no such risk, they behave in the predictably inappropriate manner.
We’ve seen this routine before, and it usually ends with a Castro or a Robespierre.
WereBear
The other difference is the the Mafia is not complicated, (f#@k you, pay me!) and Wall Street is.
Most people can’t understand a mortgage, much less the games people play with other’s money. So Wall St lies get more of a pass.
soonergrunt
@Brick Oven Bill:
Other than to note that B.o.B. really is dumber than a plastic bag of wet mice, I’ll just say–well, there’s not really anything left to say, is there?
Mr Furious
@J. Michael Neal: Whether or not Taibbi’s unedited blog posts are entirely accurate to that last detail of enforcement/prosecution, does nothing to diminish the fact that he is pretty much the ONLY reporter aggressively investigating and exposing this stuff.
He’s an investigative reporter, not a financial expert—and he doesn’t need to be to man the spotlight.
Focusing on the engraving on the badge that arrests these guys is really missing the forest.
Left Coast Tom
@J. Michael Neal:
I’ve wondered why the US didn’t insist that European countries put up some of the money for AIG given that it was their banks that were among the largest beneficiaries of this indirect bailout.
Mr Furious
B.o.B. missed his chance to infer this is somehow the fault of the “lesser races.” When he gets around to that, maybe John will bring the hammer doan again?
Church Lady
If you’re gonna bitch about what criminals the folks at GS are, shouldn’t you also be bitching about their current body guards/enablers – aka the Obama Administration?
geg6
@Church Lady:
I know it would take honesty far beyond your average Republican, but this:
is pretty much an all day, every day pastime here. I have yet to see a BJer, let alone a front pager, say how much they love Geithner/Summers. So please, have a nice portion of STFU.
Brick Oven Bill
It is both political parties LoveMonkey. It all began after WWII.
In my opinion, the bad guy is the international business / investment entities. Mao (his Little Red Book is actually pretty good, but has some gross conceptual errors that James Madison got right one hundred and fifty years earlier, Maoism will never work here) identified a similar bad guy, ‘The Imperialist’.
But Mao’s Imperialist has morphed from “Evil America” into General Electric, Tyson Chicken, and international mining companies. These companies’ stated purpose is to maximize shareholder return, which is done by lowering the cost of labor (foreign manufacturing, illegal aliens) which is all well and good, so long as the government is an honest broker, breaks up monopolies, and protects the well-being of the Citizens.
In our 2009 case, General Electric and Goldman Sachs literally own the government, and do not care about the Citizens.
So Obama is either deeply confused in his supposedly populist rhetoric, or the fact that his brother is still sitting in a shack is emblematic about an egotistical maniac, who cares for nothing other than himself.
Chairman Mao would be very angry with Barack Obama, and be less angry with George Bush.
kay
@J. Michael Neal:
“The couple alleges that Goldman declined for three years to confirm their suspicions that it had bought their mortgages from a subprime lender, even after they wrote to Goldman’s then-Chief Executive Henry Paulson — later U.S. Treasury secretary — in 2003.
Unable to identify a lender, the couple could neither capitalize on a mortgage hardship provision that would allow them to defer some payments, nor on a state law enabling them to offset their debt against separate, investment-related claims against Goldman.
In July, the Beckers won a David-and-Goliath struggle when Goldman subsidiary MTGLQ Investors dropped its bid to seize their house. By then, the college-educated couple had been reduced to shopping for canned goods at flea markets and selling used ceramic glass.”
bayville
Cole how dare you soil the reputation of syndicate crime families by comparing them to banksters!
The late Carlo Gambino was a do-gooder compared to Stephen Friedman, Hank Paulson and Dick Fuld.
kay
@J. Michael Neal:
Another one:
“When she wrote to Paulson, however, lawyers for Goldman denied that it owned the Beckers’ mortgages. So did Germany’s Deutsche Bank, a trustee that was holding thousands of subprime mortgages Goldman had converted to bonds.
To stall foreclosure, the Beckers wound up negotiating “forbearance agreements” with Ocwen Loan Servicing, a Florida company, that required the couple to pay several thousand dollars under the threat that their house would be auctioned off in a week or a month, Fabos-Becker said. Their monthly payments rose to nearly $3,300 from $2,650.
As the months dragged on, Fabos-Becker finally found a filing with the Securities and Exchange Commission confirming that Goldman had bought the mortgages. Then, when a lawyer for MTGLQ showed up at a June 2007 court hearing on the stock battle, U.S. District Judge William Alsup of the Northern District of California demanded to know the firm’s relationship to Goldman, telling the attorney that he hates “spin.”
The lawyer acknowledged that MTGLQ was a Goldman affiliate.”
J. Michael Neal
This actually has nothing to do with AIG going into bankruptcy. It is always possible for the US government to write a check to European banks for anything it wants. It’s not politically feasible, though. I’d argue that it also isn’t fair. Please explain why some of AIG’s creditors should get paid off, while others, who made exactly the same transactions, get stiffed.
The main point is that Goldman getting paid off on the AIG deals is zero evidence of any sort of favorable treatment of Goldman, or that the payments to Goldman are the result of its political connections. It got treated exactly like everyone else, and the AIG bailout came about for reasons separate from Goldman.
I’m not the one who did such focusing; Taibbi was. He made a big deal out of the fact that Justice is prosecuting Raj rather than the SEC. All I’m doing is pointing out that his argument demonstrates a lack of basic knowledge of the subject matter. He doesn’t know what he’s talking about.
He’s not the only reporter covering this. The reason you like him is because he’s the only one going off half-cocked and expressing the full on outrage that you demand. You, like him, don’t care about accuracy. You don’t care whether the outrage is founded in actual knowledge. Spittle spraying outrage is the only thing you care about, and someone who is completely clueless on the subject provides the most over-the-top invective, so he’s the only one you think is covering the topic.
Matt Taibbi is just like most of the media: he thinks that writing skill (of which he has a lot) and some dedication is all that is needed to cover a story. Actual knowledge of the subject matter is unimportant. Of course, he plays to your preconceived biases, so you ignore this part, despite skewering other journalists for the same thing.
Knowledge isn’t fungible. If you want to write useful stories on the financial crisis, you need to know finance.
Church Lady
@geg6:
Ah, yes, no one here likes Geithner/Summers. I’m trying to remember exactly who it was that named them to their respective posts. I think it’s the same person that they both serve at the pleasure of. Oh, now I remember – it’s President Obama! I guess it’s somehow Bush’s fault that they continue to hold their positions.
Maybe it’s time to let the current President take the blame for the things that have happened on his watch. Blame Bush is past its expiration date on some things.
And take your serving of STFU and stuff it.
J. Michael Neal
kay,
What’s your point? You’ve printed long quotes that have nothing to do with what I said. I did not address this specific case at all. Someone asked a general question as to why lenders are reluctant to do workouts with delinquent homeowners. I answered that general question. Your responses are irrelevant to that.
Perry Como
@kay: No, no, you see, Goldman is just doing what is right. Goldman couldn’t help it that they didn’t take a hair cut when tax payer money was funneled through Maiden Lane III. Anyone could have missed the field that said what percentage loss the contracts would be settled for! I mean, what was Blankfein supposed to do? Blankfein and Paulson worked long, hard hours to make sure AIG wouldn’t fail. In fact, Blankfein was the only Wall Street exec that worked with Paulson on the AIG bailout. Certainly Goldman deserved some sort of compensation for such service!
Poor misunderstood Goldman. How dare Taibbi try to criticize the masters of the universe.
kay
I think we need stronger state law, since our whole federal regulatory apparatus appears to be captured, and it’s clear this industry doesn’t give a rat’s ass what happens.
I think state AG’s need more and bigger guns. Just as an interim measure. To protect the citizens.
Perry Como
LOL!
kay
@J. Michael Neal:
Well, because you said lenders were reluctant to do workouts because the borrower eventually loses the home.
Goldman wasn’t “reluctant” to do a workout. They wouldn’t admit to owning the debt.
Who was the borrower supposed to deal with?
You know how this industry could begin to redeem themselves, J Neal? A practical, helpful solution? They could PUT THEIR NAME on the note. They could send this army of lawyers they have on the payroll to every county in the country and clean up this godforsaken mess they made of our recording system, which worked fine for 240 years, until the Genuis Crew got involved.
Perry Como
I should mention that last link goes to some stupid blogger’s post about Goldman’s role in deciding to bail out AIG, and how Goldman probably wouldn’t be around today if AIG had not been bailed out. I’m not sure if J. Michael Neal would consider Yves Smith as worthy enough to criticize the masters of the universe.
Xenos
@J. Michael Neal: How far off is Taibbi? As he put it:
Just because the SEC can not, itself, proceed with criminal charges against a trader or a firm does not mean that it can not proceed quite effectively with ‘enforcement actions’.
Indeed, since the SEC operates under administrative law, it can move more quickly, and act upon a lower standard of evidence, than the FBI can. No criminal liability needs to be determined in order for the SEC to shut down a firm like Galleon.
I don’t know from this article whether Taibbi understands this distinction, but you ought to.
LoveMonkey
@Brick Oven Bill:
So, whaddya think? We can solve it all by electrification of the Peace Train, right?
Davis X. Machina
I’m not sure the SEC can, unaided, do more than seek civil penalties — the involvement of the FBI may be a result of this division of labor.
J. Michael Neal
Which is, in general, true.
I have no idea, because I don’t know anything about this specific case. That’s why I didn’t make any comments on this specific case. You can rant all you want about it. For all I know, you are correct. That still doesn’t mean that it has anything to do with what I said.
In broad terms, I agree with this. You are assuming that I disagree with this because you haven’t stopped long enough to process what I actually said, rather than the point you wish I’d said so that you could argue against it.
kay
@J. Michael Neal:
FWIW, I’m taking the article at the top of the page with a grain of salt. I have the sneaking suspicion some of the populist ranters have their own scam going, a la Glenn Beck.
Given my druthers, I’d like these huge entities out of mortgage lending completely. Ordinary people are simply not sophisticated enough to deal with GS, on a purchase as central to families as a home, and they don’t follow state law or the local rules.
Let them find something else to trade. Something that doesn’t involve toys and crib stacked up at the end of a yard when the sheriff forecloses. I’d like to regulate them to the extent that they can’t reach ordinary people with this risk. Let them play with each other’s money.
John Sears
@J. Michael Neal: It seems like you’re the one making statements you can’t prove. You have no idea why the decision to bail out AIG’s gambling clients at 100% was made; you assume it was the Europeans’ fault, and not Goldman. Perhaps. Perhaps not. But the very fact that people with enormous conflicts of interest relating to Goldman made this decision is unacceptable.
The Friedman thing is particular is absolutely indefensible. He made a decision as part of the shadow quasi-government, in secret, and cashed in. It’s despicable.
cleek
note that this kindof argues against this:
Perry Como
Haha, stoopid bloggers.
Brick Oven Bill
In the longer term, electrification of the peace train is a good idea LoveMonkey. But these things take time, and nobody listened to me eleven months ago.
In the shorter term I like the idea of twenty Marine DIs, a group of Teabagger accountants, and Xe. Officially sanctioned, all.
J. Michael Neal
From Perry Como’s post #48:
From J. Michael Neal’s post #21:
You may note that post #21 came before post #48. As for the link, it doesn’t actually dispute what I said, which is that Goldman didn’t receive any special benefits: everyone got paid off, just like they did. Saying that Goldman was the only Wall Street firm involved in the talks to rescue AIG may be technically true, but is also misleading. A hell of a lot of other banks, and foreign governments, were involved in those talks, though they aren’t actually Wall Street firms, since they are based in Europe.
You somehow seem to be under the impression that I think criticism of Goldman is inappropriate or unwarranted. Mostly, this demonstrates a continued inability to read what I’ve actually written. There are a lot of things to roast them for. So many, in fact, that I get angry when people go off on irrelevant tangents and go after them for things that aren’t the real problems.
J. Michael Neal
@cleek: How are those in contradiction? The first is a statement that I am making a statement about a general condition. The second is that I don’t intend to read the article that goes over the specific case. The second would only argue against the first if I had tried to make the point that kay wants to argue against, rather than the one I actually made.
kay
@J. Michael Neal:
That’s been hard for people to take, I think. That they offered no solutions. None. It was incredible for the less-sophisticated to watch.
I assumed there would be some industry-wide effort to make good on some of this stuff. I didn’t think it would be generous, or near enough, but I did assume the entities themselves (given how they tell us they understand this and are worth millions of dollars a year in salary and bonuses) would get together and approach the country and say “here’s what we’re willing to do to fix this going forward”. They didn’t. Instead they’re spending millions on lobbying to block reform.
I was genuinely surprised. I expected something. They’re complaining that “big government” is coming in, while sitting on their ass collecting bonuses, and offering no practical solutions.
That’s hard to take.
cleek
@J. Michael Neal:
seems odd to accuse someone of not reading what you wrote, while boldly claiming that you’re going to argue against someone else while not going to bother reading what that someone else wrote.
J. Michael Neal
Quite possibly. Again, I don’t know the specifics of the case, but I have no trouble believing that a Goldman executive used inside knowledge to make an enormous amount of money in an illegal fashion. Hell, I’d be surprised if that didn’t happen.
People seem to be reading a *lot* more into my comments than is actually there. I am not offering some sort of general defense that Goldman behaved properly and shouldn’t be blamed for anything. I actually believe almost the exact opposite. I think that they bear a very large amount of the blame for what happened.
What I am saying is that the general anger towards Wall Street in general and Goldman in particular has led a lot of people whose knowledge of the subject of finance is limited to their anger about the collapse to make a bunch of charges that aren’t true. This flurry of accusations serves only to obfuscate the real problems. Unfortunately, the real problems, and the solutions necessary to fix them, are complicated, and are fraught with issues of unintended consequence. All of the yelling makes it *more* likely, not less, that the solutions are going to get fucked up.
J. Michael Neal
@cleek: Please explain to me where I criticized anything about Taibbi’s article that I did not read. The excerpt provided by John demonstrated basic errors of knowledge of the subject. I am not arguing against points he didn’t make; I’m arguing against ones that he did.
Xenos
@J. Michael Neal: Everybody is jumping on you here, but are you familiar with banking practices outside of residential lending? I have pretty limited experience myself, but I have on a couple occasions talked banks into taking five-figure haircuts on commercial real estate loans when that was necessary for an office building to be sold or refinanced.
My clients were a lot less reputable than the sorts of homeowners who get the runaround from Golden Slacks and Douche Bank. If a lender finds itself undersecured, it needs to take a haircut to if it wants some most of its principal back. This is standard business practice, and I guess the banks think that for residential mortgages they have the bankruptcy courts on their side so they feel they can tell the peasants to stuff it.
Cases like this may prove them wrong.
John Sears
@J. Michael Neal: I’m not reading anything into your comments that is not, in fact, there, and I resent the implication.
from you, @21, direct quote, emphasis mine:
You put forward two competing theories for why this bailout occurred, then chose one of them. I still maintain that, barring a hidden tape-recording of said meeting turning up, and perhaps not even then, that we do not know the reason this decision was made. It’s almost immaterial. What matters is that people with an enormous conflict of interest and financial stake in Goldman helped make the decision, and then reaped huge rewards as a result.
The current system where ex-officers and stakeholders in large financial institutions, or even current employees of said institutions, are allowed to make decisions at the taxpayer expense that benefit themselves is absolutely and completely unacceptable.
J. Michael Neal
Sure. In fact, I’d like to see reforms put in place that make Goldman a whole lot less profitable. Mostly, I focus on leverage.
One thing to keep in mind, though, is that the money that operations like Goldman loaned out so that people could buy houses (which was indirect, but was still the source of money used to buy the house in the long run) won’t be replaced by anything. Forcing them to stop trading mortgage products means that it is going to be a lot harder for people to get mortgages in the future. Many of them won’t be able to buy homes at all.
To me, this is as much a feature as a bug, as I think that the American fetish with owning a house has gotten way out of hand. Do understand the consequences of what you want, though.
John Sears
@John Sears: Ack. Ok, it didn’t like the bold tag.
The emphasized line was supposed to be ‘The reason that Goldman got paid off is because the AIG mess had turned into a foreign relations crisis.’
kay
@Xenos:
That’s why I wanted cram-down. We already have this really efficient process and specialized, sophisticated court that has a long tradition of dealing with individual borrowers, and mega-lenders, and the disconnect and imbalance of power there.
But, we couldn’t do that, although it was rational “fair” way to clean up this mess, because “banks own this place”.
J. Michael Neal
@Xenos: Commercial lending and residential lending are pretty much completely different businesses, down to the fact that most banks that specialize in pone don’t do much of the other. Direct comparisons between them are not very useful.
Xenos
@kay: If banks want to own this place we ought to let them. A large scale abandonment of underwater properties is called for. Many cities have 10% or more vacancy rates for rental properties, so why not?
J. Michael Neal
@Xenos:
And I do, considering that I have read much of the actual SEC regulation and charters.
Can they move faster? Sometimes, though that isn’t terribly relevant here. In this case, they did move fast. They pretty quickly recommended it for criminal prosecution. At that point, it’s out of their hands, and making an issue of the fact that they aren’t doing the prosecution betrays a lack of knowledge. As for Galleon, it is already shut down. The SEC didn’t actually pass the order to close the doors, but the moment they referred the case, Galleon was dead.
In the more general situation, the SEC can’t really move faster than Justice. They give the appearance that they can because they almost always just settle with the people they are investigating rather than going to trial. They have to, because they don’t have anything close to the resources necessary to actually prosecute (civilly) the actions they bring. The consequence of this is that the settlements are usually for amounts small enough that they aren’t much of a deterrent to violations, and the firm involved never admits to wrongdoing.
In this case, faster is not better. Usually, it’s the opposite.
Nutella
Presumably it’s the FBI rather than the SEC that is investigating Galleon because they had something else on the informant. Roomy Khan and her husband were sued by their maid for not paying wages which may have caught the attention of the FBI.
Apparently Rajaratnam was so bold that he even asked job applicants for insider information.
John Sears
@Xenos: I have a better idea.
Under the dubious Kelo vs. New London standard, the government can seize real property from a private entity solely for the purpose of economic development that serves the public interest.
So, state and local governments should just start seizing all the foreclosed properties from the banks, pay them what they’re actually worth (in many cases that would be nothing), and do anything they please with the property. Just about any result is better economically for the community than mass foreclosure and empty homes attracting crime, fire and wild animal infestation.
Nutella
@El Cid:
True except in the rare cases when the elites are also the victims of the robbers. That’s why Madoff is evil incarnate and all his possessions are being sold off to pay his creditors. When other white collar criminals are sent to jail, they get to keep the money they stole from middle class investor-victims.
J. Michael Neal
This is an idea I could get behind. I’d want to think about it, because, as I’ve been saying, this is a subject that is a nightmare of unintended consequences. It has promise, though.
Maybe it would get Congress to take action on tightening restrictions on eminent domain. I happen to think that Kelo was properly decided, given the precedents, and Congress is the body to be petitioned for change.
J. Michael Neal
@Nutella: No, it was an SEC investigation. They did the work and had the informants. They referred it to Justice because it became a criminal matter.
John Sears
@J. Michael Neal: I’ve never taken a position on whether Kelo was properly decided based on precedent. I’ve just always thought it was an idea that had the potential for, as you put it, nightmares of unintended consequences.
For a handy example, I did my undergrad stint at Indiana University, which is in Bloomington, Indiana. The mayor at the time was also a land developer who fancied turning a building off downtown into mixed retail/rental properties. He used his dual role to force out the businesses in question, which resulted in one of them that had operated at that location for decades going under entirely.
The development never went through, and now the building sits as a vacant eyesore, save one shopfront that is used to advertise various products to street traffic.
But, hey. Times change and you can always find new uses for old tools. Kelo could be just what we need when you have a handful of private companies that decide that hoarding enormous swaths of land is to their benefit even if it destroys the economy of the rest of the nation.
kay
@Xenos:
Every time I hear a Republican talking about breaking down state law and state regulatory agency “barriers” as it applies to health insurance I think of mortgage lending, and shudder.
You know they’ll be bundling and selling.
kay
@John Sears:
I’m disappointed states haven’t been more creative in dealing with this. They have so much power regarding real property located within their state. I expected some really innovative ideas on extracting their pound of flesh from the banksters. They got stuck with all the blow-back and expense on this. It would have been “justice”.
JC
Friedman needs to go to jail. Do not pass go, and he has already collected millions upon millions of dollars.
Seriously. If you take the bailout of AIG, times say 60 cents on the dollar, then you’ve lost the country, you are looking at tens of billions of dollars, that this individual cost the country.
Several life sentences. Throw away the key. Nothing else would be appropriate.
Brachiator
@Nutella:
What? WTF?
Where do you get the ridiculous idea that other white collar criminals get to keep their loot? Where do you get the even more ridiculous idea that all of Madoff’s victims were “elite?”
The bad economy is shaking out all kinds of mini-Madoffs. Rarely are the victims elite, and rarely is anyone made whole. Some of Madoff’s victims are even in the uncomfortable position of potentially having to give back their gains, since none of it was earned legitimately.
John Sears
@kay: You got me thinking of the Upton Sinclair quote:
There’s a very good reason we’re not seeing more creativity in dealing with these problems. Americans politicians, by and large, are either bought or captured by the very interests now threatening this nation. Bought, in that they’re outright owned through campaign contributions and conflict of interest, or captured, in that they’ve internalized all the mythology about the free market along the way, and can’t conceive of any other way to do things.
Brachiator
@John Sears:
If all the politicians are bought and paid for, then there is no point in complaining since there is no remedy.
But it appears that part of the problem is that regulatory agencies are filled with lazy, unimaginative bureaucrats, like the intelligence people who missed the early warning signs of bin Laden. A recent NY Times article on Bernie Madoff reveals some S.E.C. staffers whining about having to investigate Ponzi schemes:
You would think that Enron and other debacles would have taught these fools something, but institutional inertia is a powerful force.
And of course, the Bush/Cheney regime simply had no interest in the concept of regulating business at all, which perhaps touches on your thoughts about internalizing the mythology of the free market. But I get the sense that these goons looked at business as a fraternity or nest of cronies. As long as they and their friends did well, they couldn’t give a damn about what happened to anyone else.
I also get the unfortunate sense that Team Obama likes to focus on theoretical and macro economic issues, but is not very competent when it comes to the more concrete, nuts and bolts aspects of regulating business.
Comrade Scrutinizer
@Brachiator:
I wonder whether the problem isn’t incompetence on the part of the Obama administration, or whether it arises partly from existing regulatory bodies having been rendered impotent by lack of funding and lack of competent personnel, and partly from the failure of the Congress to enact new regulatory legislation to close some of the chasms that were exploited by the financial industry.
Having asked that, I realize that the Obama administration hasn’t covered itself with glory with the resources it has, but I also think that the problem goes much deeper than that.
BillCinSD
@kommrade reproductive vigor:
Well, as through the world I’ve rambled,
I’ve seen lots of funny men
Some rob you with a sixgun,
some with a fountain pen
As through this world you ramble,
as through this world you roam
You’ll never see an outlaw
drive a family from its home
Woody Guthre “Pretty Boy Floyd”
Brachiator
@Comrade Scrutinizer:
As I noted in earlier threads, Obama knew some of the economic problems he would have to handle as soon as he won the nomination, and had a clear idea of the financial markets mess when he won the general election, so there is not much excuse for a lack of a more comprehensive plan. If he needed more money for agencies, he should have asked for it. I note an inadequacy of personnel, but this should have been matched by some bold staffing choices.
NPR’s Fresh Air recently had an interview with a journalist who wrote about Obama’s financial team, centered in Treasury. They were hot about economic theory, financial markets and the history of the Depression, but few hard-headed pragmatists who had a feel for business and the practical aspects of regulation.
If they can’t get regulation done out of Treasury, they should let the Secretary of Commerce oversee this, working with states with a good reputation for regulatory issues. They need someone like FDR’s Secretary of Labor, Frances Perkins, who helped turn New Deal ideas into effective and practical policies.
I always go for the simplest explanation, until there is credible evidence for something more complex. Here in California, for example, everyone — Democrats and Republicans — knew that a budget nightmare was coming, and yet they tried to avoid doing anything substantive. The same has been true of various state and local agencies and school boards. It appears that many of these people simply do not know how to govern when times are bad. I suspect that this is also sadly the case with a lot of the Congress and the folk who make up various federal agencies.
Steeplejack
@Brachiator:
Word.