Wall St Borrowed $1.2 Trillion from Fed…
Barry Ritholtz points us to how essential US government intervention was for the banking system and in particular existing banks and the management at The Big Picture. It has links worth pursuing as well.
I continue to be of the mind that the Wall Street Bailouts were misguided, and that a massive Swedish style reorg would have been the best thing for the nation and the economy in the long run. Both Uncle Sam and the Fed would have provided the broad based debtor in possession financing required, and the losses would have fallen where they belonged — on the Shareholders and Bond Holders — and not the taxpayers.
The latest evidence of this: Data obtained by Bloomberg News through Freedom of Information Act requests, followed by months of litigation, and eventually, an act of Congress. (Wall Street Aristocracy Got $1.2T in Loans)
Note these are not ideas come about with the benefit of hindsight, but what a small band of insightful people were saying at the time.
An honest broker of the situation would have:
1. Fire the senior management of the banks (see this)
2. Banned all lobbying activity as a condition of any aid (see this)
3. Forced a Swedish style prepackaged bankruptcy (see this and this)
and the losses would have fallen where they belonged — on the Shareholders and Bond Holders — and not the taxpayers.
What losses did the taxpayers incur from this program?
Zombie infestations don’t any cheaper to remediate by procrastinating, Sammy.
A very good comment by former Treasury Secretary James Baker in the Financial Times, “How Washington can prevent ‘zombie banks’,” warns that the US is on its way to repeating the Japanese error of propping up dud banks and creating a moribund economy as a result.
Just better things should have come of it all.
US Treasury through TARP purchased $750B in MBS’. This asset is about as useful as the tens of trillions in war spending the past 60 years, which are also “assets” and not losses.
Check out how much your treasury “holds”.
The fed bankers’ bank, balance sheet holds, not loans, $1000B in MBS purchased from wall st.
Neither are “loans”.
The line of credit the fed prepared was multiples the tiny ECB “facility” for bailing Ireland, and Greece.
There are enough refuting articles this week that the repeat of Japan must be likely.
OK on the point of execs, of the big screw ups, Prince went at the start of the crisis at CitiBank, as did the ONeil at Merril. Angelo got a get out of jail card from BofA. Ken Lewis eventually fell. John Thain also got canned in the BofA deal. The CEO who screwed up Wachovia also got kicked out as the guy who was in when it was bought out had only been there 3 months. AIG played revolving door with CEO’s Greenberg,Sullivan and then Williamstead for 2 months. Of course Cassono also got a get out of jail card. Fuld got canned in the BK, Cayne was kicked out a few months before Bear Stearns collapsed. I believe most CFO’s got canned in the process as well, so the question is how many levels do you clean out, beyond the CEO and CFO and the board?
I could use a bit of any one of them’s severance package.
Given that the loans were offered at well below market rates (read the article), the program amounts to a big subsidy and thus a distortion of the market. (Hey, aren’t you always talking about how important it is to let the market do its thing?) I’d further argue that the country could have used some inflation (3% to 5% range), and by ensuring that the banks coould get loans at rates like 1.1%, it prevented that from happening.
But there is another issue. A few months ago, programs like this were said not to exist. Slowly, slowly, we’re learning about bigger and bigger programs. The article mentions that as a result of this program, banks “some banks may have used the program to maximize profits by borrowing “from the cheapest source, because this was supposed to be secret and never revealed.””
In English, that means banks paid off some of TARP using this program. And they paid off some of their other problems with TARP. And in six months, we’ll learn that they paid off some of this program with another. And it seems along the way, there have been programs to take toxic assets off the banks’ balance sheet. At some point we’ll learn that this program had some similar benefits.
And if none of that is a problem for you, then ask where is the recompense for the good banks that did everything right? Why have good policies and good procedures when the Fed and the feds will bail them out for stupid stuff?
In English, that means banks paid off some of TARP using this program.
Unless the banks have a time machine, this is not possible as the emergency liquidity loans were before TARP. This belies your lack of understanding embodied in your whole comment.
What most people are taking from this story is how close we were to a total financial meltdown. It also shows how heroic and effective the Federal government and Geithner were. What you Libs should be saying is that this shows the need for a large and powerful Federal government, for which, for once, I would have no retort.
Instead your desire to see the entire of Wall Street frog-marched out, stripped of their assets, and nationalized so that the likes of Obama, Biden, and Frank could operate the financial system overshadows this likely fact.
We must be reading different comments.
This shows the need for a large and powerful Federal Government, keeping a tight lease on the financial industry.