Break up the Megabanks: My take in the New York Times debate

Across the globe, we continue to feel the repercussions of negligent, reckless, and dangerous banking practices rewarded for screwing up so broadly and decisively. And it's far from over. Here in the US, the biggest banks are bigger, riskier, bloated with federal subsidies, and more of a threat to us than ever before. Thank you, Ben Bernanke, the Fed, Tim Geithner, Hank Paulson, the Treasury Department, Barack Obama, Larry Summers, George Bush, Jamie Dimon, Lloyd Blankfein, John Thain and all the other pillagers who took part in this national and international travesty. 

We aren't done with this crisis. It's just in remission given the epic stimulus the big banks received. We shouldn't have to wait for the other shoe to drop to pull a Glass-Steagall. 

Read the rest of my comment, along with those of Simon Johnson, William Black and others, in the New York Times Debate Forum.

The Fed's Lending Reports: Not that Earth-shattering by design

So after much anticipation (though I've got to admit, I wasn't exactly waiting for it with bated breath), the Fed released its official crisis lending report. The idea was that it would shed more light over which banks got the most perks during the Great Bank Bailout and Subsidization period. And, whereas it certainly gives more detail on which specific securities where pledged in return for which emergency facility funds during the crisis - for which you have to dig into several different pages on the Fed's website to get to each facility and each excel report separately. The Fed provided no descriptive aggregations (like how many AA securities that were subsequently downgraded because their underlying loans sucked, did Citigroup pledge across Fed facilities, etc) though, that can be determined by further inspection of the data. Even so, the reports don't really tell us anything we don't already know. Long story short,  spanning 21,000 transactions from December 2007 to July 2010, they don't reveal which banks borrowed what from the Fed’s discount window (the part we wanted to know), while confirming that the biggest banks got the most help from various facilities (the part we already knew).

But hey – the future of the free world was at stake, the Fed did what it had to do, and things would have been much so worse without fearless Ben, Tim and the boys intervening with trillions of manufactured dollars. Bernanke can breathe a sigh of relief. Why? Because he dodged a big bullet and the gun is now empty. He didn't really disclose any earth shattering information in all the various legs of this report. It will take a bit of time to comb through each spreadsheet, but on first glance, beyond the litany of dodgy securities, mostly rated AAA despite all the incompetence of the rating agencies, used to extract more useful funds, it reveals nothing about the manner in which the biggest, most powerful banks gamed the system to survive on federal capital. 

Aren't Geithner and Bernanke eerily quiet about the Foreclosure Crisis?

Maybe I'm missing something, but it strikes me there's been a deafening silence emanating from Treasury Secretary, Tim Geithner, and Federal Reserve Chairman, Ben Bernanke, on the foreclosure front. It’s as if they a) don’t read the news or b) are afraid someone will notice their incompetence. While Senator Harry Reid, Nancy Pelosi and other Congress people are dispensing irate pre-election sound-bites, Attorney Generals across the country are gearing up for investigations and lawsuits, and banks are announcing foreclosure moratoriums because it’s quarterly earnings season and uncertainty is bad for stock prices, (plus they are afraid their REO customers (private equity funds, asset managers, etc) will fear future legal repercussions, so they’ll have nowhere to dump all the properties they can’t sell), Geithner spent last week defending TARP (again) and talking up the merits of global economic coordination and the dollar.  Meanwhile, the Fed is gearing up to buy more Treasuries (in addition to its $300 billion program) because no one else wants them, like some kind of alien that spawns offspring so it can eat its  own progeny.

Foreclosure fraud is not new, many sane people and organizations have been talking about it for years, plus you don’t manufacture $14 trillion worth of mortgage backed securities in all their permuted and over-leveraged glory out of $1.4 trillion worth of subprime loans in 5 years without cutting a lot of corners.  But the reason this situation is hairy for Geithner and Bernanke is that the government owns or is backing trillions of dollars worth of assets predicated on the same suspicious loans that were defaulting into the 2008 crisis period they did nothing to stop, while lavishing the banks that promulgated them with the biggest bailout and subsidization in US history.

The Fed owns nearly $1.5 trillion toxic assets that already have no bid (actual buyer), and will have less of a bid the more uncertainty there is about the loans that fill them. The Treasury is directly backing $400 billion of GSE securities, and is behind another $6.8 trillion of indirect backup to the GSE's. Both entities are desperately hoping the financial market doesn't seize up (yes the market, they don’t seem to be bothered about individuals and their homes), so they don't become the only bid again (well, actually still) behind any securitized asset. That would ruin their story – that the bailout worked even though it did absolutely nothing to help borrowers at the loan level, or by extension the general economy.