Date: Thu, Dec 2, 2010 at 11:51 PM
WSJ, Dec. 2, 2010
...Interesting piece on the cliff-hanger. Its position is that the bail-out was absolutely necessary and that it should never have to happen again. "These too-big-to-fail behemoths" must be broken up.
Now how is this for criticism and self criticism by Capital itself?
Then note the figure of "$3,300 billion in loans to banks and companies without a congressional say-so." Many loans went to foreign banks and so on. Do you think Congress would have authorized three trillion plus? In short, hell no. And then what would have happened? The below seems to suggest that Congress might be charged with responsibility for such gigantic loans/bailouts...pretty strange for the WSJ.
Competitive capitalism is supposed to be characterized by a myriad of firms any one of which , or combination of which, cannot affect the system as a whole. That is classic Laissez-Faire. Then, to make matters worse today, the concentration of monopolistic or monopsonistic (limited monopoly) firms in Finance is an unnatural disaster waiting to happen.
Add in the Insider Trading that we are reading about today in the news, and the confidence necessary for the system as a whole to work, is further eroded. So here we have the Watchmen, like the FT and WSJ telling the truth about the reckless nature of the Best and the Brightest on Wall St. Or, if not the best/brightest, the crookedest.
The Jewish angle should be researched and some kind of measured judgment rendered on just how much of Wall St. wretchedness is Jewish and how much is White, etc. The Color of Crime on Wall St.
At the time, while many Rightists were against the bailouts and all of the Left, the Real Left, were against as well, the moderate left and right were for them, from the NYT on the left, to I guess the WSJ..don't recall for sure. I was for the bailout. Just about all the money has been repaid with interest. Now the Financial System must be roto-rooted by the SEC and so on.
Search FT.comThursday Dec 2 2010
All times are London time
Wall Street owes its survival to the Fed
By Sebastian Mallaby
Published: December 2 2010 14:47 | Last updated: December 2 2010 14:47
For a brief, surreal moment, the prevailing narrative in Washington was that the 2008-09 bail-outs were not really so bad. In September, Treasury secretary Tim Geithner called the government's troubled asset relief programme "one of the most effective emergency programmes in financial history", claiming that the final cost to taxpayers would be less than $50bn.
Steven Rattner, the Wall Street banker who oversaw the Obama administration's rescue of the auto sector, wrote in the Financial Times in October that "without exaggeration, this legislation [establishing Tarp] did more to keep America's financial system – and therefore its economy – functioning than any passed since the 1930s".
But Wednesday's document dump from the Federal Reserve – a congressionally ordered "WikiLeak moment" – puts this bargain-bail-out patter in a new perspective. The post-Lehman rescues were far broader than Tarp, and far riskier for taxpayers, even if the alternative of a systemic meltdown would have been worse.
The Federal Reserve's revelations underscore the might of unelected central bankers. The Treasury's Tarp rescue fund, at $700bn, was considered so audacious that Congress at first refused to authorise it. But the Fed doled out no less than $3,300bn in loans to banks and companies without a congressional say-so.
What's more, the Fed frequently ignored Walter Bagehot's dictum that central banks should provide liquidity freely, but against good collateral and at high interest rates. The Fed's borrowers included institutions such as Lehman and Citigroup, which were insolvent rather than illiquid. It accepted collateral that included toxic asset-backed securities, and it charged interest rates that were more palliative than punitive. Moreover, while the Fed took all these risks with US taxpayers' money, a large chunk of its emergency lending went to foreign banks.
In its statement accompanying its data dump, the Fed claimed soothingly to have "followed sound risk-management practices". It is hard to square that boast with the Fed's Maiden Lane facility, which accepted some of Bear Stearns' most toxic assets as collateral for a $29bn loan to its acquirer JPMorgan Chase. The Fed also stated that its "facilities were open to participants that met clearly outlined eligibility criteria". But one wonders about criteria that permitted taxpayer-backed loans to everyone from Verizon Communications and Harley-Davidson to Sumitomo Corp and the Bank of Nova Scotia.
Richard Fisher, president of the Dallas Fed, manfully concedes that the central bank took "an enormous amount of risk with the people's money". But he adds that the risk is now behind us – that the loans have been paid back and "we didn't lose a dime and in fact we made money". Yet it is too early to say that. The Fed has yet to recoup the money leant to JPMorgan in the Bear Stearns rescue; and its later Maiden Lane programmes, created to help AIG, have not been repaid either. Indeed, the Fed still has some $29bn of AIG loans on its balance sheet. The collateral backing this largesse includes $9bn of subprime mortgages and other smelly assets of dubious value.
The point is not that the Fed was wrong in its determination to stem the panic following the Lehman bust. Indeed, if the European Central Bank were similarly audacious, the euro-zone might be better off today. The most recent leg of Europe's crisis began when the ECB ran out of good collateral to lend against, and demanded that politicians assume the burden of the bail-out – a role that the politicians predictably bungled. Far better to have an activist central bank that takes ugly risks with its own balance sheet than a fastidious puritan that throws the economy to the elected dogs.
Rather, the point is that the Fed bail-outs were hair-raisingly enormous, and that neither the regulators nor the regulated should be allowed to forget that. Wall Street institutions that now walk tall again survived only because the taxpayers saved them. Goldman Sachs turned to the Fed for funding on 84 occasions, and Morgan Stanley did so 212 times; Blackrock, Fidelity, Dreyfus, GE Capital – all of these depended on taxpayer backstops. The message from this data dump is that, two years ago, these too-big-to-fail behemoths drove the world to the brink of a 1930s-style disaster – and that, if regulators don't break them up or otherwise restrain them, they may do worse next time.