Bailout Plan Will Toughen Bonus Rules (Sort Of)
But I argue that allowing poorly managed banks to fail would eliminate bonuses completely. Which makes more sense?
Bank Bailout Plan Will Toughen Rules on Bonuses, Axelrod Says
Jan. 31 (Bloomberg) -- President Barack Obama’s senior adviser, when asked whether the new administration will ban Wall Street bonuses, said “limiting some of this executive compensation” is necessary to rally public support for a financial-rescue plan.
David Axelrod, who was Obama’s chief strategist during the campaign, stopped short of embracing a ban on bonuses for companies receiving bailout funds. He left no doubt, however, that the administration will take tough steps to address the issue.
I guess it depends on your definition of tough. One tough, but good, decision that they could make would be to do nothing; let the banks fail. This would cost us nothing and would take care of the bonus problem for executives. "Limiting some of this executive compensation" is just foolishness at this point. These companies have no money and are banking on socialist bailouts -- bonuses should be a thing of mere memories at this point.
“It’s very hard for the American people to understand how a bank executive should get a multimillion dollar bonus at a time when he’s asking the government to essentially bail out his institution,” Axelrod said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” scheduled to air this weekend.
Bingo.
Axelrod said Treasury Secretary Timothy Geithner will “have something to say about” bonuses as early as next week when he releases guidelines for banks receiving funds from the second half of the $700 billion financial rescue package.
The administration is committed to “a strong, private financial sector” in the bank bailout, Axelrod said when asked whether there are discussions to partially nationalize U.S. banks.
Does this last sentence make any sense to anyone? "A strong, private financial sector" followed immediately by talks of a bank bailout. Generally I think it's pretty well understood that this results in a weak, socialized sector. Am I missing something?
What does it Take to be an "Expert" ?
Financial experts and lawmakers including Democratic Senator Chuck Schumer of New York have said the government may need to spend more than $1 trillion to help the financial markets. Axelrod declined to discuss specific numbers, though he said the administration is crafting a plan that will “set up new rules of the road” for spending the remaining $350 billion of the rescue package approved under the Bush administration.
I'm glad these financial "experts" have realized that we need to spend more money, go into deeper debt, and extend more credit in a recession that was caused by too much spending, too much debt, and too much credit extension. Who calls these guys experts?
Bipartisanship
Axelrod said he couldn’t predict whether any Republicans would support the package in the Senate, where the bill has grown to almost $900 billion.“We’ll see,” Axelrod said. “You know, we’re hopeful. But the important thing is that a dialogue was opened. There were good discussions back and forth.”
He also said Obama would continue to try to set the tone of bipartisanship he pledged to bring to Washington during the campaign.
“Old habits die hard in this town,” Axelrod said. “There will be many instances in which there’ll be cooperation -- maybe not with every Republican, and maybe not with every Democrat -- but we’re going to forge coalitions behind all of our initiatives.”
I am really hoping that the Republicans in congress that have been opposed to many parts of the Obama Administration's bailout plan are not simply opposed to it because of party lines -- and I do believe that this is the case. This talk of cooperation and needing to overlook party lines is nonsense. Maybe those in congress against these bills have more on their mind than party lines. Let's hope that they are concerned with the budget deficit, growing public debt levels, and the compete failure of all money spent to "fix" the economy up to this point.
Maybe there is some hope that our representatives are starting to get a clue. Don't be fooled by the bipartisanship talk, I think some of these guys are on the right track and for the right reasons. I hope that more representatives on both sides of the aisle begin to follow suit. Hopefully they can force whatever does end up passing to be a lot less detrimental (thought it is unlikely that it will be "good" -- just less bad).
Is Anyone Still Claiming that We Have a Free Market?
I question how people can so frequently say that this is the end of the free market. What free market? We haven't had a free market in America since 1913 and even earlier. A recent article really made me wonder how anyone can still be claiming we are in a free market.
Suburban Federal Savings Bank told to sell
Federal banking regulators have told Crofton-based Suburban Federal Savings Bank that it must be sold by Friday or face a possible government takeover.
The 53-year-old thrift has been trying to recover from losses on soured real-estate loans. In documents filed last week, the Office of Thrift Supervision ordered Suburban to merge with another institution or accept "appointment of a conservator or receiver."
Do you think an order to sell by Friday yields a high asking price to anyone looking to buy? Why is the Federal Government coming in and telling banks what they have to do? And why, if they don't sell, is the government going to take them over instead of allowing them to go bankrupt?
What's free about a market where companies are given ultimatums by the Government. The Government has been touting their need to buy assets from big banks, and essentially nationalize them. They have already bought massive amounts of preferred stock in many national banks, and they have hailed this as a good think. Now the same Government is using government takeover as a threat.
So which is it, is government takeover of banks bad or good? How can it be a threat and the solution to our problems?
The Case for 100% Reserves
Suburban accounts with less than $250,000 in them would be fully protected by federal deposit insurance if the bank fails. But amounts over $250,000 may not be protected.
It is unclear how many uninsured deposits Suburban has. As of Sept. 30, the bank had 660 accounts containing more than $100,000 - the amount that was the ceiling for deposit insurance before it was increased last year. Those accounts had $91 million in them, according to the Federal Deposit Insurance Corp.
This is just silly. If we had 100% reserve banking, the government would not have the liability of insuring deposits of PRIVATE companies, nor would the private companies risk billions of dollars of citizens money by overextending themselves with greed. The current banking system is an insolvent ponzi scheme and this shows how silly it is. Let's get to a 100% reserve system, its the biggest step we can take to preventing these collapses in the future -- banks are already approaching the 70% reserve rate, lets keep them there for now at least!
A week later, Dutch insurance company Aegon NV told federal regulators that it was exploring a bid for Suburban as a way to become eligible for the $700 billion bank bailout program. However, it withdrew its application in mid-December. Aegon, which has its North American headquarters in Baltimore, would have had to own a savings institution by the end of 2008 to access bailout funds.
Even if they do get a decent offer, it's clear that it will only be an attempt to steal more money from the taxpayers anyway. If they don't get taken over by the government, other banks will use their assets to get more money from the TARP.
Either way taxpayers are screwed, and in some cases like these, private companies are being given ultimatums by our "free market" government. Is anyone still buying this?
"Bad Bank" Sounds Like a "Bad Plan"
Recently there has been a lot of talk going on about a "Bad Bank" plan that would create an entity that would simply buy up "troubled" assets. The term "troubled" is very misleading, what it means is inflated. The price of these assets was ratcheted up by record levels of available credit. Before I go too much further, lets see what others are saying.
Bank Bailout Could Cost Up to $4 Trillion: Economists
The cost of restoring confidence in U.S. financial firms may reach $4 trillion if President Barack Obama moves ahead with a "bad bank" that buys up souring assets.
The figure far exceeds even the most pessimistic estimates of how great the loan losses might be because there is so much uncertainty about default rates, which means the government may need to take on a bigger chunk of bank debt to ease concerns.
Goldman Sachs economists said ideally the public sector would step in to remove the hardest-to-value assets, which would alleviate nagging worries about future losses and hopefully help get lending going again.
There are so many problems with this -- where shall I begin. "Ideally the public sector would step in to remove the hard-to-value assets." Note the source of this quote -- Goldman Sachs economists. It is obvious that they cannot be too good at economics for their company is being hit just as hard as others...seems they didn't have much of their money in the right place.
Also, the value of these assets are anything but hard-to-value. If the government would allow these assets to get to where they need to be, there will be buyers. The problem is that we are propping them up, so people are not sure what they are really worth (though we all assume -- and rightfully so -- that it is lower than what we are being told simply by the nature of the "propping up" idea). We could easily find what they are worth if we forced the banks to dump their assets in the open market instead of to the government.
WEF 2009: Global crisis 'has destroyed 40pc of world wealth'
$4 Trillion to Restore Confidence?
Ignoring the fact that no amount of money can really restore confidence to the markets until the people are ready. Obviously there is no reason for confidence in the current market considering the state of unemployment, the rate of layoffs, the in-sinking frugality mindset, and the downward pressure on wages. However, the government claims it can continue throwing more money at a problem that was caused by too much money. Let's look at what has happened.
WEF 2009: Global crisis 'has destroyed 40pc of world wealth'
Steve Schwarzman, chairman of private equity giant Blackstone, said an "almost incomprehensible" amount of cash had evaporated since the financial crisis took hold.
"Business will be very different," he added.
His comments came on a day of the World Economic Forum characterised by the gloom of its participants and warnings that the crisis will endure for some time. News Corp chief executive Rupert Murdoch kicked off the meetings by warning that the atmosphere was worsening – despite global economic confidence plumbing the lowest depths on record.
"The crisis is getting worse," he said. "It's going to take drastic action to turn it around, if it can be turned around, quickly. I believe it will take a long time."
An "almost incomprehensible" amount of cash has evaporated. If 40% of the world's wealth has evaporated, I'm not sure if 4 trillion is much more than a drop in the bucket. Of course, readers of this blog should know that this is really like comparing apples to oranges. You can't compare government spending with wealth. In fact, more government spending generally leads to less overall wealth, and more debt-enslavement.
The government wants us to believe that they can spend their way out of this, but no amount of government spending creates any real wealth. If we reprinted and re-spent enough dollars to equal the amount of wealth that has vanished, then we would still be at the same amount of net wealth because every dollar in existence would just be worth that much less. The government cannot restore this wealth no matter how much it spends.
Not only is spending 4 trillion dollars small compared to what has happened, but it is a foolish attempt that will only leave the nation with less wealth and less prosperity in the long run.
Asset Uncertainty Nonsense Continues
Continuing with the original article at cnbc, we see more silliness regarding the uncertainty of asset prices.
"Unfortunately, with an unprecedented meltdown in mortgage credit and a deep recession in the broader economy, there is a great deal of uncertainty about the value of almost every asset,"
I am not claiming to know the value of these assets, but I will point out that the government surely does not know their value either. In fact, no individual can really know their true value, only the market can determine this. I talked about Government (mal)Investment that many people were and are proposing the government to undertake, and I called it absurd at the time.
Now people are saying that the value of these assets is uncertain, and yet somehow they think the government can be certain to get good deals on them. This is total insanity and needs to be stopped.
The "Bad Bank" being proposed right now is nothing more than a "Bad Plan" that will continue the erosion of the middle class and the long term wealth destruction of this nation.