Inspire Political Discourse

President Obama on Wall Street

On Thursday, President Obama went in to the veritable 'lion's den' and made a strong case for financial reform:

“As I said on this stage two years ago, I believe in the power of the free market.  I believe in a strong financial sector that helps people to raise capital and get loans and invest their savings.  That’s part of what has made America what it is.  But a free market was never meant to be a free license to take whatever you can get, however you can get it.  That’s what happened too often in the years leading up to this crisis.  Some -- and let me be clear, not all -- but some on Wall Street forgot that behind every dollar traded or leveraged there’s family looking to buy a house, or pay for an education, open a business, save for retirement.  What happens on Wall Street has real consequences across the country, across our economy. [emphasis mine]

Break up the big banks?

Economist, Paul Krugman:

Clearly, there was a massive increase in financial concentration, with a few true behemoths emerging. It’s easy to argue that this creates moral hazard, because the giant firms know that they’re too big to fail – which is also an easy slogan to remember. The idea that size is the problem has gained a lot of credibility from Paul Volcker, who personally embodies the truth of too big to fail (if you’ve ever met him); more seriously, Volcker has argued strongly that the repeal of Glass-Steagall, allowing financial firms to grow big in part by merging conventional banking with investment activities, set the stage for the crisis.

My view is that I’d love to see those financial giants broken up, if only for political reasons: it’s bad to have banks so big they can often write laws. But I’m not sold on the centrality of too big to fail to the crisis, for reasons best explained in terms of the second doctrine.

Economist, Simon Johnson:

There is no social value to having banks above $100 billion in total assets and we all now understand the danger of allowing banks to become 10 times that size – let alone entering the $2-$3 trillion range; we will gradually and responsibly force our biggest banks to become smaller.  This worked for Standard Oil – no one can claim it hurt the oil industry.  And who would really want to go back to having AT&T run a monopoly in any part of telecommunications?

AIG in the Mix

And more to come, we can be sure.

The slide show Goldman used to pitch Abacus is pretty damning.  It starts with so many pages of fine-print "disclaimers" and "risk factors" that it seems like a Viagra ad ("call your doctor if ...").  There's a lot in there about well-respected (but at best gullible) ACA, this firm that Goldman claimed was picking the bonds.  About half of the 66 slides sing ACA's praises, but there's no mention of Paulson. There are long descriptions of ACA's capabilities, their "internal" and "external data sources," and their "defensive trading" designed to "minimize real market value exposure."

Here's where it gets uncomfortable for Geithner and some executives.  Remember all that criticism of the taxpayer-funded AIG bailout, and how under Tim Geithner's direction (he was running the New York Fed then) AIG paid 100 cents on the dollar to Goldman and other "counterparties" for its debts?  It turns out that AIG insured seven Abacus deals, and the debts they were ordered to pay may have included payoffs on some of these deals.  It turns out that AIG reportedly wanted to pay 60 cents on the dollar, but Geither's New York Fed directed them to pay the full amount.

AIG paid $13 billion from its bailout to Goldman at Geithner's direction.    And now, as the Wall Street Journal reports, the SEC "is investigating whether other mortgage deals arranged by some of Wall Street's biggest firms may have crossed the line into misleading investors."  And, while "It isn't known what deals the SEC is investigating," the Journal adds that "among the firms that created mortgage deals that soon went sour were Deutsche Bank AG, UBS AG and Merrill Lynch & Co., now owned by Bank of America Corp." [......]

Wall Street is a House of Cards

And the cards are collapsing, one by one. Or more. [Emphasis and link, mine.]

Goldman Sachs has been drawn into a fresh controversy as lawyers demand to know whether it was partly responsible for triggering Lehman Brothers’ downfall by shorting its rival’s shares.

The Wall Street behemoth is already being investigated by a number of financial regulators around the world in addition to the US Securities and Exchange Commission’s fraud charges over derivatives mis-selling. It has now been named in a court filing seeking information about short-selling Lehman shares.

Goldman has been subpoenaed to hand over documents to Lehman’s Bryan Marsal, the man responsible for winding up the bank’s affairs and repaying creditors. Goldman was named in the court filing along with four other firms, including hedge funds SAC Capital and Citadel. Goldman declined to comment on the Lehman case.

Too Many Wall Street Shills ...

McConnell (R-Ky) managed to get 41 GOP senators to vote against even DEBATING the financial reform bill. This, after his private meeting with Sen. Cornyn and a group of 25 Wall Street executives, most of them hedge fund managers, a week earlier.

As a financial reform bill starts to take shape in Washington, two key lawmakers came to New York City last week to explain what it means for Wall Street, and how financial executives might help prevent some of its least market-friendly aspects from becoming law by electing more Republicans, FOX Business Network has learned.

About 25 Wall Street executives, many of them hedge fund managers, sat down for a private meeting Thursday afternoon with two of the most powerful Republican lawmakers in Congress: Senate minority leader Mitch McConnell of Kentucky, and John Cornyn, the senior senator from Texas who runs the National Republican Senatorial Committee, one of the primary fundraising arms of the Republican Party.

The undercurrent of the gathering, however, was undeniably political. [......]

It was revealed earlier in the week that McConnell's talking points came directly from a memo created by GOP pollster, Frank Luntz, and are nearly all completely false.

McConnell's hometown paper published a scathing editorial titled "McConnell to big banks' rescue". The Lexington Herald-Leader accuses McConnell of  pandering to Wall Street executives ,as well as his repetition of the false talking points created by Luntz. 

Political Cartoon of the Week

Via Editorial Cartoonists

Update on Goldman Sachs

>>According to Bespoke Investment Group, the fraud charges cost Goldman Sachs $14.5 billion in market capitalization as of the close of the market on Friday.

The CDO involved in the Goldman lawsuit cost investors on the wrong side of the trade about $1 billion.  Goldman Sachs (GS) is down $25 at the moment, which translates into $14.5 billion of market cap.  Are these charges going to cost Goldman $14.5 billion?

>> Reuters’ Felix Salmon minces no words in his assessment [emphasis mine]:

I think that the SEC has the right defendant here. Paulson and ACA are both culpable, but it’s Goldman which was clearly central to the plan of deceiving investors into believing that the CDO was being managed by people who wanted it to make money, when in fact it was being structured by the biggest short-seller in the entire subprime market.

And although ACA should never have been so passive in terms of accepting the names given to it by Paulson, it did reasonably believe, because it was essentially lied to by Goldman Sachs, that Paulson was in the deal to make money on the long side:

>> And Felix Salmon regarding the Abacus Pitchbook:

Here is the Goldman Sachs pitchbook for the Abacus deal in question today. It spends 30 pages talking in great detail about ACA and its qualifications to manage CDOs; it never mentions Paulson.

>> US stock drops as fraud charges hit, via Business Week:

“The Goldman story is pulling the stock market down, and you’re getting a flight to quality into the yen,” said Carol Hurley, a senior market strategist in Chicago at Lind-Waldock & Co., a unit of futures broker MF Global Holdings Ltd. “It’s most definitely weighing on risk sentiment.”

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SEC Files FRAUD Charges Against Goldman Sachs

This is BIG. Civil charges only. But still……..

Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.
The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.(emphasis mine) [……]

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VIDEO: Maddow Exposes GOP Lies on the Financial Reform Bill

Maddow makes it clear. Republicans are liars, and are representing the interests of Wall Street rather than those of the American people.

Scott Brown Announces Payback to Wall Street

Scott Brown (R-MA), elected in January to fill Ted Kennedy’s seat in the Senate, after a campaign largely financed by Wall Street, is now “returning the favor”. But of course.

As the Senate prepares to take up Sen. Chris Dodd’s (D-CT) financial regulatory reform bill, Brown said “in his strongest statement yet” that he “can’t support it.” While Brown said he is still “open” to working on a bipartisan bill, he seemed befuddled when asked how the bill could win his support: [……]

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VIDEO: Barney Frank on Hardball Calls Out the GOP on Their Blatant Lies Re the Financial Reform Bill

Earlier in the week, I talked about Mitch McConnell, and the GOP’s efforts to kill the financial reform bill now in the Senate.

As of yesterday, the lies from the GOP were coming ever faster and more furious. And all based on a memo by GOP pollster Frank Luntz, concerning tactics to be used by the Republicans to kill health care reform, which talking points have now been converted and used to attempt the murder of financial reform. Imagine that. Republicans lying. Republicans protecting Wall St. and the very financial services companies that drove us to the brink of economic collapse.

Barney Frank obliterated the nonsense last night on Hardball.

How do we hate thee?

Five of the worst: the banks/financial services firms that brought us to the Brink.

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Stock Market Indicates Confidence in the President

A healthy stock market has long been considered a sign of confidence in a President.

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Mitch McConnell and the Republican Party Stands in Defense of Wall Street and Against Financial Reform

Last week McConnell attended a private meeting with 25 Wall Street executives, many of them hedge fund managers.

What McConnell did not mention was that, last week, he traveled alongside National Republican Senatorial Committee chairman Sen. John Cornyn (TX) to New York City for a private meeting with elite hedge fund managers and other Wall Street executives. The purpose of the meeting between the top Republicans and the financial executives was to enlist “Wall Street’s help” in funding Republican campaigns in the fall and killing any tough financial reform:[......]

This week McConnell has thrown down the gauntlet, refusing to deal on Dodd's financial  
reform bill. His excuse making harkens back to the much publicized GOP strategy memo written by pollster Frank Luntz. In point of fact, his arguments against reform are close to exactly as Luntz urged the GOP to make.

In order to prevent future taxpayer bailouts of the big banks, to prevent our economy from spinning out of control again, to protect our country from financial insolvency, we must legislate financial reform. Period. The removal of controls on the financial services industry is what got us in to this mess to begin with. If we listen to the Republicans we are asking for more of the same.

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