Analysis: White House, Dems backpedaling on AIG

[Illuminatus Primus]

But messing with those financing bankers is against everything George Washington ever stood for.

Not from G. Washington, but just for grins :

"I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."
Thomas Jefferson

"You are a den of vipers and thieves. I intend to rout you out, and by the eternal God, I will rout you out."
Andrew Jackson: To delegation of bankers discussing the Bank Renewal Bill, 1832

Too bad those of those men were anti-modernist morons. I am sure glad we live in Jefferson's sublime agrarian neo-Roman republic...oh wait.

[Thanas]

I am not sure if it is fair to characterize Jefferson as an anti-modernist moron.

[SirNitram]

My main point is not that the banks / financial may need to be nationalized or whatever course of action is necessary, it's that we already have a process in place for this with the FDIC which already handled the IndyMac takeover as SirNitram mentioned.

Gods, you don't know what you're talking about. Actual banks going under is done by the FDIC. 30 so far in this crash. AIG, for the blazing example, cannot be touched. Guess what it doesn't have? FDIC insured accounts, CDs, Cashier's Cheques.. You know, those things the FDIC is allowed to involve themselves with.

Insurance? Annuity? Investments? Anything from fraud? Not touched, not legally allowed to be touched. Bank Act of 1933, AKA Glass-Seagalman. And what was not removed in the orgy of deregulation? Right.

Virtually everything dragging the system down and the companies involved are not FDIC insured, nor within their purview. The law must be altered to enable takeovers.

[aerius]

So at first blush, it appears that Geithner wants broad authority to do as he sees fit to sieze federal control of "failing financial institutions." The FDIC has guidelines and precedents for use in bank regulation and seizure; what would Geithner's guidelines be? Would he make them up as he goes along, with input from Bernanke, whose Fed is prohibited by law from taking equity stakes (not that it's stopped them)? I'll withold opinion on the wisdom of this request until we get more details, but I'm skeptical, since it was a dismantling of banking regulations and nonexistent enforcement of current laws by the Fed and Treasury that enabled the corruption of AIG, Madoff, Allen Stanford, Fannie, Freddie, and so on and so forth.

Secondly, this proposal would, theoretically, give whoever was President the authority to take over any bank desired without checks and balances, as the proposal would give a political appointee sweeping powers. Again, we don't know what criteria would be used to determine a financial institution's health, so I'll wait to see where this goes.

Thirdly, what constitutes a "major financial institution?" Would GMAC or GE Finance fall under this umbrella? How about pension funds? There seems to be, at this point, a lot of wiggle room for the SecTreas to do whatever he wants.

Treasury already has sweeping powers to take over & control ANY financial institution under Section 2 of the EESA/TARP bill. They can designate any financial as an "agent of the government" and make them do whatever the fuck they want, if Treasury makes Citigroup its agent and says "you will give $500 billion to Goldman-Sach", it would be perfectly legal. They could go "Citi, you will buy everyone elses' bad MBS's" and make it happen, basically using it as a bad bank and sinking it.

Treasury can't put a company into receivership and run it down the way the FDIC does with failed banks, but they can use their EESA/TARP powers to do something very similar. Designate the financial as an agent of government and order them to sell off everything, which is effectively a liquidation. Hell, Treasury can even setup the bidders on the liquidation ahead of time, and dictate the terms of the contracts and how much is paid for what. The new rules just make it formal so it doesn't look crooked. I expect them to dick it up and abuse the powers like they have with everything else so far.

[Knife]

Might that be because the process was stalled by the Bailout of the banks by Congress and Bush?

You can make an argument that such measures could stall the process yes.

They refused to let the FDIC into the process and deal with these insolvent banks,

Err. yes. But isn't that due to the loosening of the rules that made a normal bank indistinguishable from a finance bank? If you want to make the rules effective, they should have kicked in years ago when they were butchering these rules.

instead propping them up in their hospital bed with piles and piles of cash.

This statement is indicative of my problem with your side of the issue. Theses fucks made money in the last 20 years by convincing low and middle class people to invest in them. Hell, my old job quit having a 'traditional' retirement and moved everything to 401k's ten years ago. I didn't do it. Sure, I remember everyone telling me how much money they were making, but they had all that evaporated once in the late 90's with the tech bubble, then more recently in early two thousands it evaporated again. It didn't take a genius to see this current shit coming and me and the wife pulled all our money out, cashed in and put it into education and assets.

It is always a scam for the lower class of people. Sure, sometimes you can make out fine. It depends on what is going on with the upper class, and nothing to do with what the lower class does. So it comes down to luck for lower class people. Might as well gamble, or do a lottery.

But to suggest; We the people are holding these institutions up with our tax money is some sort of bullshit when it took our low level investments, our retirements moved into 401k's, our mortgages (whether good or bad), to finance these fuckers to make bad bets to make their easy cash and then fuck us all from those bad bets, as some sort of bad investment of the PEOPLE is bullshit. It was all a scam and it came crashing down around everyone, the rich and poor alike. To suggest, with your analogy, that the anyone other than the victims, are supporting these ventures is asinine and dishonest. With out the investments of the little folk, these asshats in the higher brackets wouldn't have the capital to make their bad bets.

The new plan is to instead make Geithner the new FDIC, even though the FDIC was not allowed to do what they were mandated to do in the first place. You can't claim that the FDIC is ineffective if you stop them from doing their job and then complain when they didn't do what was necessary.[hen/quote]

Where the fuck was the FDIC when these fuckers were making bad bets with our mortgages? Oh yeah, not their job.

What didn't? The bailouts? Agreed! How is turning Geithner into a one man FDIC going to work when they didn't let the original FDIC do what was needed before?

flexibility?

We trust him more because of what exactly? His excellent history of handling his own finances? His glorious embracement of the ways of Greenspan? His amazing tenure at the head of the New York Federal Reserve?

lol. So you don't like the guy. What about his position makes this bad?

It nevere got a chance to try and fix it in the first place.[

Excuse me? After one year of this shit, arguably two, who didn't have a chance of fixing it? Fuck, it's been coming for years and who stopped it?

Congress and Bush were too busy stuffing money in their orifices to give the FDIC the chance to announce the time of death.

If it was law, and it didn't happen, what makes you think it works at all, let alone 'next time'?

And this plan has anything to do with that how exactly?

I don't know. Not that far into it, but off the cusp of things, gives the guy on the ground the authority to make reasonable adjustments to the very things that fuck over all of society.

How does making Geithner into a one man FDIC beholden to the President that nominated him help in anyway?

Cuts out the beuracracy? I though the right liked that sort of thing?

[Count Chocula]

Cuts out the beuracracy? I though the right liked that sort of thing?

I'd rather the elimination of a bureaucracy, or not creating a new bureaucracy, myself. One could easily posit that the enforcement of fraud, lack of visibility, and other "high crimes and misdemeanors" committed by Wall Street, including duping pension fund managers into buying CDOs that have no open market value, could be adequately handled by Congress and the Justice Department, were they so inclined. It appears, unfortunately, that they have not been so inclined.

Your inference is correct, in that putting the power to swoop in and take over insurance companies and hedge funds into the hands of a single person "cuts out the bureaucracy," but it also puts an inordinate amount of power into the hands of a single political appointee beholden to the President. Today, it's Geithner reporting to Obama; in four years, who knows? There's a betting pool giving 20% odds that Geithner will be gone by the end of '09, but that's immaterial.

This particular administration is capitalizing on Congress', the Fed's, and the Justice Department's laxity of past years to make a power grab that's breathtaking in its scope. And, if it passes, it's a concentration of power that will accrue to EVERY President and Treasury Secretary, not just the ones currently in office. I'd like to see the actuaries figure odds on the stability of ANY hedge fund or insurance company, when the specter of a Fed takeover hangs over the whole industry.

[Knife]

Cuts out the beuracracy? I though the right liked that sort of thing?

I'd rather the elimination of a bureaucracy, or not creating a new bureaucracy, myself. One could easily posit that the enforcement of fraud, lack of visibility, and other "high crimes and misdemeanors" committed by Wall Street, including duping pension fund managers into buying CDOs that have no open market value, could be adequately handled by Congress and the Justice Department, were they so inclined. It appears, unfortunately, that they have not been so inclined.

Your inference is correct, in that putting the power to swoop in and take over insurance companies and hedge funds into the hands of a single person "cuts out the bureaucracy," but it also puts an inordinate amount of power into the hands of a single political appointee beholden to the President. Today, it's Geithner reporting to Obama; in four years, who knows? There's a betting pool giving 20% odds that Geithner will be gone by the end of '09, but that's immaterial.

This particular administration is capitalizing on Congress', the Fed's, and the Justice Department's laxity of past years to make a power grab that's breathtaking in its scope. And, if it passes, it's a concentration of power that will accrue to EVERY President and Treasury Secretary, not just the ones currently in office. I'd like to see the actuaries figure odds on the stability of ANY hedge fund or insurance company, when the specter of a Fed takeover hangs over the whole industry.

lol, high crimes and misdemeanors?

[KrauserKrauser]

Gods, you don't know what you're talking about. Actual banks going under is done by the FDIC. 30 so far in this crash. AIG, for the blazing example, cannot be touched. Guess what it doesn't have? FDIC insured accounts, CDs, Cashier's Cheques.. You know, those things the FDIC is allowed to involve themselves with.

Insurance? Annuity? Investments? Anything from fraud? Not touched, not legally allowed to be touched. Bank Act of 1933, AKA Glass-Seagalman. And what was not removed in the orgy of deregulation? Right.

Virtually everything dragging the system down and the companies involved are not FDIC insured, nor within their purview. The law must be altered to enable takeovers.

Thanks for the info Nit. I know I was going out on a limb for AIG but the main arguments brought up by DW were in reference to the bankrupt banks.

AIG is a special case that I was unsure the FDIC had jurisdiction over so in this case the existing regulatory structure does not cover AIG? Interesting. I still remain unconvinced that the best way to handle it is to hand the reigns over to Geithner as he already has a horrible track record with AIG in his New York Fed tenure. Wouldn't the more prudent course of action be to simply expand the FDIC's purview or create a new "FDIC" for the troubled assets? Why put all that power in one man's hands?

[Count Chocula]

The FDIC does not handle AIG (specifically its investment services arm), but it does have authority over the banks that purchased AIG's derivatives. The FDIC still would have been unable to stop the purchases, but the head of the Federal Reserve, Ben Bernanke, could have ordered banks to cease purchasing CDOs and counting them on balance sheets once he found out about the derivatives mess (2007 or earlier).

[SirNitram]

Gods, you don't know what you're talking about. Actual banks going under is done by the FDIC. 30 so far in this crash. AIG, for the blazing example, cannot be touched. Guess what it doesn't have? FDIC insured accounts, CDs, Cashier's Cheques.. You know, those things the FDIC is allowed to involve themselves with.

Insurance? Annuity? Investments? Anything from fraud? Not touched, not legally allowed to be touched. Bank Act of 1933, AKA Glass-Seagalman. And what was not removed in the orgy of deregulation? Right.

Virtually everything dragging the system down and the companies involved are not FDIC insured, nor within their purview. The law must be altered to enable takeovers.

Thanks for the info Nit. I know I was going out on a limb for AIG but the main arguments brought up by DW were in reference to the bankrupt banks.

AIG is a special case that I was unsure the FDIC had jurisdiction over so in this case the existing regulatory structure does not cover AIG? Interesting. I still remain unconvinced that the best way to handle it is to hand the reigns over to Geithner as he already has a horrible track record with AIG in his New York Fed tenure. Wouldn't the more prudent course of action be to simply expand the FDIC's purview or create a new "FDIC" for the troubled assets? Why put all that power in one man's hands?

First off, I find the idea that one man is going to become analogous to the FDIC simply farcical. Even a small town bank takeover requires a dozen or more people, with the usual array of superiors. The article itself splits the power between two seperate groups of high-enders: TreasurySec and the Fed Reserve board. So the idea it's 'in one man's hands' is farcical on it's face.

You can't dump it on the FDIC: They're running out of money because during the years of Congressional dominance by conservative Dems and GOPers, it was declared the FDIC had MORE than enough money! No need to collect dues.

Creating a new agency takes alot of time. And it further allows stupid 'growing the government' bitching from the Congressional conservatives. Geither is not a perfect choice. But if he realizes it's time to stop bullshitting, that puts him a leg up over the group which will definitely filibuster any new agency creation.