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Christmas Presents for Bankers
In the same spirit of surprise, the Obama administration announced on Christmas eve that it was removing the $400bn cap on Fannie Mae and Freddie Mac's access to the US Treasury. The new draw is limitless. It also announced that the chief executives of the two government-controlled mortgage giants would be getting compensation packages worth $6m a year. This was another big blow for the financial sector in its effort to sap every last cent from the productive economy.
After throwing the economy into the worst downturn since the Great Depression and bringing the whole sector to the edge of collapse, the financial industry has used its political power to succor itself back to life. It is now stronger than ever.
In the last quarter, the financial sector accounted for 34% of all corporate profits, dwarfing the share reached in the mad days at the peak of the housing bubble. The economy might look bleak on Main Street, with double-digit unemployment rates and nearly 200,000 foreclosures a month, but they were dividing up $13bn in bonuses at Goldman Sachs this Christmas.
Most people already knows the various public pots that Goldman and the rest tapped to make themselves healthy and rich again. There was the $700bn troubled asset relief programme (Tarp) loan fund, the hundreds of billions of dollars worth of guarantees that the FDIC provided to cover their borrowing at the peak of the crisis, and the trillions of dollars lent out by the Fed. However, the bottomless line of credit for Fannie and Freddie could prove to be the biggest pot of gold of all.
Fannie and Freddie both collapsed in September of 2008 when the bad mortgage debt they purchased at the peak of the bubble overwhelmed their reserves. The Treasury Department put them into conservatorship and gave each of the mortgage giants a $100bn line of credit to cover future losses. This level was raised to $200bn each earlier this year as losses ran higher than expected.
However, this increase was supposed to be just a safeguard. We were assured that actual losses would never approach these levels. That seems reasonable since the bulk of Fannie and Freddie's loans were prime, meaning that they came with either a 20% down payment or mortgage insurance. Even with a collapsing housing bubble it is difficult to lose too much on prime mortgages.
If 10% of Fannie and Freddie's mortgages (held or insured) defaulted, this would amount to $550bn in bad mortgages. If they lost an average of 25% on these mortgages, this still only leads to losses of $163 billion, less than half of their $400 billion line of credit. And, this is before taking into account their prior reserves and profits on ongoing operations. As it stands, Fannie and Freddie had drawn just over $100bn of their line of credit, so it is difficult to understand the need for raising their borrowing limit from an amount almost four times this level.
There is one possible reason that Fannie and Freddie could see much higher losses. Suppose that they deliberately buy up mortgages from banks at inflated prices. This was the initial purpose of the Tarp, but it quickly got sidetracked into lending capital to banks. This was the better policy, but it still left the banks with huge amounts of bad loans.
Perhaps Fannie and Freddie are now acting as a "backdoor Tarp". This could easily lead to losses in excess of $400bn. It also is the type of policy that you might want to announce on Christmas eve when no one is paying much attention.
This goes along with the $6m pay package for the people who now run these government controlled entities. Is this really what we have to pay for good help? The Treasury secretary gets paid $191,300 a year. Should we infer, based on this fact, that he must be incompetent?
The folks running Fannie and Freddie prior to their collapse pocketed tens of millions of dollars in compensation. The Treasury now tells us that their incompetence could end up costing taxpayers more than $400bn.
If nothing else, the great recession should teach us that paying executives lots of money obviously does not ensure that we will get competent people in charge. But, this is not a story about doing what is best for the economy and the country. This is a story about doing what's best for the financial industry. That was the name of game in Washington DC before the collapse and that is still the name of the game – until people get pissed off enough to do something about it.
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27 Comments so far
Show AllIn the last quarter, the financial sector accounted for 34% of all corporate profits, dwarfing the share reached in the mad days at the peak of the housing bubble.
Nothing goes on indefinitely. This house of cards will eventually collapse. If it's the next time or the time after that is immaterial. It will eventually collapse utterly and no rescue will be possible. This is the fate of the white hot house of greed that is the United States.
Lrt's hope there IS a solution beyond following this mad path to destruction. If only we can find it in time.
Gary
Sioux Rose
Anyone have a recipe for "grilled banker"? If the people get hungry enough (which all trends point towards), perhaps this delicacy will become featured on the urban menu of millions who otherwise might starve. Reminds me of a scene from a Tennesee Williams play... as the local impoverished kids take apart Sebastian.
You'd have to marinate it--it's not a tender cut. Wow! Suddenly Last Summer Haven't thought of that in years but you're right, there is some of that tension in this real live theater.
"Debris, debris, debris..."
Please refer to the following site for the best way to prepare banker. Evidently they are better roasted. It even has a picture. Enjoy.
http://www.firepit-and-grilling-guru.com/whole-pig-roast.html
If 34% of all corporate profits in the United States last quarter came from what is called "the financial sector", that means that a full third of the overall functioning American capitalist economy was accumulating wealth while producing no real world goods and no real world services whatsoever. Sure, the capital gains cashed in and the bonuses pocketed by the individual Masters of the Universe are real enough, but the rest is all funny money - symbolic paper wealth, created purely by endlessly reshuffling paper around, like casino gamblers continually strategizing over the fluid recycling of their respective stacks of chits.
At least the robber barons of the Gilded Age manufactured some useful things and provided services that actually satisfied human consumer needs to some degree. Today, one third of our national economy appears to be purely parasitic - making money by just moving money around.
The modern "financial sector", at its uppermost and most sophisticated levels, engages in the esoteric 21st Century alchemy of concocting securitized debt obligations, finessing the latest market and international currency fluctuations, and hedging everthing with credit default swaps and highly creative accounting. Your friendly local banker or the credit union loan officer does provide a service that has some social utility. But does anybody on the payroll of Goldman Sachs actually do anything that has real world value to ordinary folks out here on Main Street?
I think not. Please correct me if I'm wrong.
Bill from Saginaw
You're not wrong but complete right that at least a thrid of the public economy is mony shuffling. Not real capital -- look how quickly much of it evaporated.
And Forbes had the gall to pick the CEO of Goldman-Sachs as their Man of the Year!!
Quick, Alice, hand me part of that mushroom!
Gary
Baker isn't using the proper economist math like Paul Krugman does. In Krugmans essay the Big Zero todays Common Dreams he sites numerous losses to society such as housing losses, retirement accounts, jobs lost, health care lost etc. evrerything was a loss but it only equals zero.
If we overdraft it doesn't stop at zero. We get smashed with fees and charges for each check that bounces.
Not in Krugman land. It only equals zero. Baker needs to go back to the University of Krugman and learn real economics.
Dean Baker Repeats The Big Lie ...
"the financial industry has used its political power to succor itself back to life. It is now stronger than ever."
The banks are NOT stronger than ever. They have massive losses on their books that don't count because accounting standards have been thoroughly corrupted.
The fact is the banksters have hundreds of billions in losses and are one good economic shock from blowing up.
Trillions in derivatives just wait the light of day to be counted as near worthless. The housing crisis is not halfway over, the commercial real estate crisis is just beginning.
Yet Baker repeats the BIG LIE ... Banks are stronger than ever ...
Mean while the looting of public funds continues. Just over the weekend the Obama Administration removed the cap on public assistance to Fannie and Freddie ... this will allow the banksters to off load even more toxic crap on to the public balance sheet ...
Saw an article about this a few years ago, hope I remember it right. The financial scamming has a DAR history to it. The scamming started with Alexander Hamilton who, along with a friend, bought up lots of Revolutionary War debt real cheap because most people thought they'd ever get anything for their bonds. Then, viola, he's Washington's Secretary of the Treasury and gets Congress to pass an appropriation to pay off the debt at or close to full value.
Actually, Hamilton didn't--but his in-laws did.
And, what is Robert Rubin's think tank called again?
Yes Hamilton's successors are alive and well. Don't know Rubin's think tank but the Federalist Society, which spawned Alito, Roberts, Scalia and (?) Thomas is filled with Hamilton's cheerleaders.
Hamilton caused the Whiskey Rebellion by purposely Bankrupting small trans-Appalachian Moutain farmers with the whiskey tax,in order to create a labor force for large East Coast distillerys.
Whiskey was the only product profitable enough for the small farmer to transport over the mountains for a cash profit.
Hamilton knowingly imposed a whisky tax that made this source of income no long profitable for a small farmer.
Any wonder Hamilton got his ass shot? Way to go Aaron!
Gary
Sad to say, we're probably screwed. Our rulers are not only enthralled by the financial sector, they are the financial sector. They don't call it "Government-Sachs" for nothing. These banksters create too-good-to-be-true investment packages that always end up as a bubble and implode! Addicted gambling casino gurus and their Nobel mathematical wizard friends are having a high time figuring out how to defraud the rest of us. And the sad part is that they usually succeed. Even sadder, with our industrial base now gone, these fraudsters are the only economic game in town.
Sioux---
Banker Recipe...
1. Stake out in hot Mohave sun, naked, until the fine print dries to the surface of the skin.
2. Scrape off fine print. Remove testicles. Save for later.
3. Slice thin. The body not the testicles.
4. Run entire body through a paper shredder, ritually, slice by slice. Chanting helps while doing this, preferably in a group setting. Music to a strong beat might be nice.
5. Boil shredder's contents in a cauldron of cherry Kool-Aid until an aspic.
6. Send aspic along with a bill "for services RENDERED" to White House Chef with a kind letter suggesting proper uses in additional recipes. Include one called "hot dog aspic." Do not disclose contents of proprietary aspic. That will come later but first they must eat of the fruits of their labor such as it is.
7. Send testicles to Al Quaida with note identifying each pair, and suggesting we have resolved the problem now please back off, and if we can be of any assistance in rebuilding Iraq and Afghanistan, and Gaza and Lebanon, and Yemen and Syria, we are open to suggestions. Apologize most especially for the destruction of the thousands-year-old olive groves, and the mosques, and the looting of the Iraq Antiquities Museum.
Personal variants of recipe are of course welcome. The more the merrier.
30-
Sioux Rose
OLE MAN: No bitches' brew could prove a finer one than that which your imagination just concocted! Thanks for the post. It made me laugh out loud. Now, just past the winter solstice in the season of Saturn (Capricorn), I can see how the dark macabre sentiments of one such as Edgar Allen Poe came to be. Laughter is like the sun breaking through a dense, stubborn cloud cover.
Come to think of it, I'd guess that bankers' testicles, rare, could prove a gourmet item in densely rural parts of China?
CASSANDRA: I forgot the title. It was, "Suddenly Last Summer," wasn't it? I was friendly with Tennessee William's now-deceased aunt, a well-known palmist in Key West. One Christmas she handed me a cassette tape of Tennessee reading some poetry that had never been published. Unless it still shows up, it seems to have gotten lost in one of my moves. I dearly regret THAT mix-up! He's my favorite American playwright.
One of the branches of my family tree that arrived in the US before independence was achieved was a fellow named Halberstadt who was a Hessian mercenary captured by Washington.
The Hessians were renowned in the Western World of the 18th century for their guerilla tactics which they accentuated with practiced fearsome appearances: they were tall, solid and wore their hair and beards long. Perhaps they brought to the minds of the more "civilized" and fancy-uniformed forces of the time the legendary hordes of Huns that swept from the east centuries before to leave an indelible if somewhat mythologized imprint on the dissolving chaos of the feudal political and land systems.
Historically many of the Hessian mercenaries were small subsistence farmers who were gradually pushed off their traditional "tribal" lands as the landed gentries bumped against one another and vied for supremacy and beneficial geo-political alliances, particularly after the Reformation re-drew the maps of the area in Germany that was their home.
In some ways the manner in which the Hessians were deprived of their livelihoods and historical homelands mirrors some aspects of the banking crises and what is being passed off as their solutions today, but in those days the currency was land first and currency second. The feudal land systems allowed for the landed... the Dukes, Princes, Emperors, Kings and Czars, their underlings and relatives... to take whatever land they needed to pay off debts they had incurred by living far beyond the means of their labor and their resources. The Hessians turned to the work of mercenaries because they had no other option. They were kicked off their lands, given a choice to become neo-serfs or, in a scheme that echoed their own fight to stay Independent and Free, retained a sense of their independence by becoming professional warriors.
The wars, large and small, to secure and squeeze profit and resources from the territories "The Landed" coveted and needed to continue to provide themselves with the unsustainable ultra-lavish lifestyles they had become accustomed to, were fought by those who were forced into servitude. In the case of the mercenary Hessians, the work of front line fighting and subterfuge was purchased from those who had been gradually left without land or livelihood in a central Europe in which population growth was threatening its ability to sustain itself. There were simply not nearly enough of the landed wealthy to fight their own wars. They were, in the first place, unaccustomed to such taxing physical labor and so they had become adept at arranging the circumstances in their territories in such a way that the larger populations were compelled or outright forced to take up arms for the pittance they were allowed in return, what might call home in between drought, famine and plague.
The Hessians figured out a way to get a more consistent return from their labors and were soon being hired by war-makers all over Europe and, as in The American Revolution, beyond. They remained, generally, staunchly un-allied with those they were hired by, and those who hired them kept their distance from these hairy, scary, loud, independent and smart, if untamed warriors. The Hessians were also known to fight against one another in various conflicts if the price was right.
One of the reasons so many Hessians were convinced to switch sides and support the American upstarts was because of Washington's habit of treating prisoners well... better than they were treated by the armies that had hired them. Some, like my ancestor, were also given land in the "west" after the war. It may be, as well, that many of the Hessians used the opportunity to be paid to fight the Americans as a way to find a new home... where they were, after they switched sides, often given land in Indian territories and used as the forefront of the push to do to the Indians exactly what had been done to them.
Many of the aspects of this story ring true and unchanged today on a number of fronts.
One: one wonders how the struggles to moderate the Muslim public’s attitude toward the US, and their penchant for acting out their rage in terrible and violent ways, would be different if those captured in suspected and real transgressions against the American Empire were treated better than they are treated at home. In many if not a great majority of cases these Muslims have been forced into poverty and hapless servitude to megalomaniac religious fanatics as warriors and terrorists due to losses they have sustained in recent generations due to changes in how the wealth of the nations is captured, exchanged and controlled.
Two: the similarities between how the Hessians and other post medieval Eurasians lost their ancestral lands to The Landed and the nature of how the modern banking system has been rescued from it’s own excesses by the decree that the majority of the population give up their own slim hold on material security certainly disproves any thought that the American system of government represents a great change from the governing systems it was devised to escape and better. And if the loss of a widely revered and actionable notion of Habeas Corpus is not a major symbolic and real indicator of this regression I don’t know what is.
Three: half of the warriors fighting our wars now are paid mercenaries. They direct top secret raids and surveillance on “the enemy”. Their loyalties remain untested.
The Hessians too were used in despicable ways against local populations, ways that were distasteful to those who hired them who did not want to dirty their hands. They were the front lines in any “fear factor” propaganda and/or example their bosses wanted to go before the rest of the brightly colored armies.
And so we pretend to go forward by going no where at all.
"until people get pissed off enough to do something about it."
I'll hold my breath until I turn blue
When you finally take a breath, they'll call that 'mission creep'. They're counting on it. You need to make them turn blue before they'll 'feel your pain'.
bobv---
You write in no small part:
"And if the loss of a widely revered and actionable notion of Habeas Corpus is not a major symbolic and real indicator of this regression I don’t know what is."
In the brief history of the Hessian experience you contextualize, brilliantly done.
Actually, the historic force of the Germans in early America is grossly under-reported. One tiny example...in early 1800s Perry County, Indiana, south-central along the Ohio River, the first newspaper was printed in German, although the territory had earlier been "settled" (after 1811) by Scots-Irish pioneers from Virginia, the Carolinas and Kentucky.
Meanwhile, I have a major question for you that I probably could answer by going Wiki, while I want your side: Were the Hessians German Catholics or Lutherans, or something else? In Perry County Indiana it would appear that the German influence was mostly Catholic, as would be the case as they came down from Cincinnati. Very well organized, they took over and predominated. Not because they were "better," but because they were far better financed than those who had come before.
If memory serves, Ben Franklin didn't like the German influence. Being born of both of these sides I remain conflicted. I doubt that Europe is settled! For example, consider that the British Monarchy is German.
***
Sioux---
I also laughed out loud upon reading your first sentences in reply to my latest missive. I also clapped. We really do need to retain some sense of humor here.
The alternative can only be a Buddhist Immolation in front of the White House.
If I get terminal cancer, I know my mission...
-30-
"Meanwhile, I have a major question for you that I probably could answer by going Wiki, while I want your side: Were the Hessians German Catholics or Lutherans, or something else?"
My great grandfather Halberstadt was a minister in what I believe was an Anabaptist/Mennonite sect church and had churches and family spread along the Wabash River in Illinois and Indiana. Robinson, Illinois was my grandmother's home town and my father was born in Terre Haute (he eventually graduated from Rose Hulman Institute there). That great grandfather was, apprently, also a member of the KKK. There is an old cathedral town in what used to be East Germany named Halberstadt.
I think the area of Germany from which most Hessians hailed was pretty squarely in protestant territory, although in some of my informal research I have found a large number of Jewish Halberstadts. I would welcome more directly and indirectly related information about this.
Who says manufacturing is dead in the United States of Global Domination?
No one has ever manufactured so many crises out of crises!
Bush failed to eviscerate Social Security.
Obama is sharpening the knives.
Anesthesia anyone?
"That was the name of game in Washington DC before the collapse and that is still the name of the game – until people get pissed off enough to do something about it."
MOVE YOUR MONEY! http://moveyourmoney.info/. It's a video that might help you get pissed off enough to actually move your money to a better place.
bobv---
I know I'm digressing from the main thread here, but your report tends to confirm that:
* German influence in early U.S. history is far greater than generally acknowledged (I read some years ago that in the mid-19th century there were more Americans of German than British heritage).
* German-Jewish assimilation was extensive and probably carried over well into the New World from the Old. One could say that Hitler was actually a cultural anomaly due to the reparations imposed upon the Weimar Republic after WWI, esp. by the French.
* Many surnames in the United States today are made-up names based on place of origin. For example, your cathedral town of Halberstadt...while living in Clark County, Indiana back in the 90s I met a woman surnamed Fulda, after a small cathedral town named Fulda in Germany. Globally, place-names as surnames of course go back millennia. Thus my German-Jewish mother's paternal surname was "von der ______" after a town in Portugal, centuries after the migration. (Makes me think, as an aside, that the Ellis Island "screeners" were about as competent as TSA screeners today!)
Interesting, how family oral traditions so often differ from the official history. How will this country remember this decade a generation from now? Two bubbles and a rape? Thanks, and Happy New Year. One can "hope"!
-30-
The Halberstadt story is a rather exhaustively researched one from that side of the family... of course, as you imply surnames are very often a result of a personification of the place of origin, the occupation, the father/parents ("of" so and so, or such and such an occupation or place) or the features of the land one was from.
Another branch of the family, of my own surname, is taken from the French word for Fens... a common land form in Normandy and Brittany (there's a city named Vannes, not quite the same spelling as my name) and THEY crossed the channel with William the Conqueror and were given land in northern England/Scotland for their efforts (as protection against the Picts/Scots?)and ended up being used repeatedly as the front lines of empire builders from there, to Ireland, to the US. My Irish branch, of course, is prefixed by Mac... I believe that's the "of". Potato Famine folk. Black Irish.
Interestingly (and even more completely off track) both the Halberstadt grandfather (perhaps of Jewish stock and with features that might not be all that "white") and my grandfather with my surname (who was most probably up to half Native American of an as-yet-to-be-determined tribe) were members of the KKK in the 1920s and 30s and maybe before... perhaps their way of assuring their complete assimilation into American values? The source of the Native American root has been lost, unfortunately, except for inferences and portraits and pictures, and past quick denials about recurring dark skin, cheek bones and eyefolds... as all the Ohio/Wabash River Tribes were nearly decimated and there is a stopping point in that part of the family tree that remains buried. Apparently one of my grandfather's sisters lived alone in a shack in a strawberry field. Some day I may get DNA teating to see if this theory is born out.
What does this prove? We are all mutts.
The town of Halberstadt is actually in the German state of Saxony-Anhalt which abuts Hesse, but I don't know how the borders were arranged or what the allegiances were back when my ancestor went to work as a mercenary.
Great talk. I'll be looking for your comments in the future on CD. My father died this past year and would have been glad that this story is being told, although the political implications would be lost to him. A life long staunch Michigan "Milliken" Republican who, none the less, voted for Nader the second to last time he voted for President. One of my last big outings with him was a train trip across country from Chicago to San Francisco where his cousin, a Halberstadt, lived. They grew up together and it was the last time they saw each other. I was primarily the baggage handler! Both my father and he were quite small and would not be mistaken for any huge Hessian warriors... in comparison to me: I am a full head taller than my father...