Another reason to dump Geithner

It made the front page of the business section of yesterday's Times, but the broadcast media haven't had much to say about it: it seems that back when Timmy Geithner still was president of the New York Fed, he and his crew had a real opportunity to get the banks that bought credit default swaps from AIG to take a haircut. Some, according to the Binyamin Appelbaum, were ready to do so voluntarily. Nevertheless, Timmy ("Wall Street's Pocket Puppy") Geithner determined that American taxpayers would make good 100% of Wall Street's potential losses.

If you've been around this blog for a while, you may remember how I was especially pissed off by the AIG bailout — here, for example, and here, and here. Well, I certainly am no happier now than I was back then — in point of fact, "pissed" no longer is an adequate description of my feelings of revulsion. Now that the GAO has reported that Geithner, apparently, felt greater obligations to the banks than to the human beings rescuing them from their paroxysms of greed, I am angrier than ever — both at Geithner, and at Barack (Robert Rubin's Pocket Puppy) Obama for appointing him to Treasury.

If Obama wants to align himself with the populist perspective, and portray the Republicans (accurately) as pawns of big finance, he'd better stop being a pawn of big finance himself. Dumping Geithner would be a very good start.

Greece and the Eurozone

The street protests in Greece continue, as more and more Greeks figure out that they are being asked to transform themselves into citizens of a third-world country for a generation or so for the sake of minimizing losses by the banks of Europe. US exposure seems to exist mostly in the form of credit default swaps; how many, one wonders, were written by taxpayer owned AIG?

All in all, it looks like Greece, shortly followed by Portugal, Ireland, Spain, and Italy, soon will be forced to accept "bailouts" of the very rich by the middle classes and the poor.

Forced? Uh huh. If it turns out to be "politically impossible" to persuade ordinary outer-edge Europeans to vote for governments that will impose the requisite "austerity" measures needed to keep the super-rich fat and happy, the availability of governments (through coalitions and similar tricks) will be sharply reduced — leaving only those "democratically elected" governments willing to play along.

Can it be stopped? Can the megacorps be compelled to take "haircuts" for fear of far greater losses, perhaps to neck level? It may depend on the Greeks.

From my perspective, it would be better to take our chances on a Greek default — and see what shakes out — than to keep the bailouts going and spreading until the eventual default becomes devastating to the point of worldwide depression. The Greeks, of course, will not be letting me write their economic policy — but maybe somebody that somebody listens to will start the conversation, and quiet the whining of the Germans and the European Central Bank.

The Eurozone — like NATO, perhaps — just expanded too fast. Letting Greece in in the first place was a sure indication of poor oversight. Right now, Greece really needs the drachma, Portugal needs the escudo, and Ireland needs the Irish pound You can't have a unified monetary policy without a unified fiscal policy — and for the Eurozon, such a policy is far, far away.

Bonus busters

Anybody still braying with populist fervor over the retention bonuses at AIG should have a look at this letter of resignation from Jack DeSantis, recipient of one of the million dollar contracts that created all the stir. It certainly resolves the questions I was left with last week when I advanced my "sneaky secretary" hypothesis (which turns out to be invalid, by the way.) A few interesting points, widely overlooked:

• In the case of DeSantis, at least, the retention bonus was to be his entire compensation for the year. Like Liddy, his salary for the year was one dollar.
• A relatively small number of employees of AIG's Financial Division were involved in the credit default swap mess, and almost all of those are gone from AIG.
• Confronted by frothy-mouthed Congressmen, Liddy just quaked and quivered, failing to explain the justification for offering the bonuses -- justification that actually makes some sense if you're not choking on your own bile.
  

By the way, this is not to say that I think anybody is worth more than a million dollars a year. If you can't manage to have a really nice life on one million plus benefits, you're not smart enough to be earning that much. Even DeSantis says, "Some might argue that members of my profession have been overpaid, and I wouldn’t disagree."

(I'm also one of those who believes that the highest paid employee of a company should not be earning more than twenty times what the lowest paid employee earns. If the CEO is paid a million, the clerk doing data entry should be paid fifty grand -- but since this entry is not entitled "utopian schemes," I'll say no more about that idea.)

Anyway, if a Congressional Committee ever manages an opportunity to question, say, Dick Cheney or Donald Rumsfeld, I hope it can manage to be a lot more focused and thoughtful than Financial Services was when it grilled Ed Liddy. Anybody who needs bloviation and outrage can listen to Rush Limbaugh. From our elected representatives, I think we deserve something more.

AIG again, again

About fifty years ago, I remember my mother telling me how a secretary could provide herself with job insurance. The trick was to reorganize the boss's filing system -- so that she was the only one who ever could find anything. I don't know if my mother ever really employed that system, but when I heard about how the jerkwads at AIG who wrote all those toxic credit default swaps had to be paid retention bonuses because they were the only ones who could figure out the mess they'd created, I wondered if their mothers, too, had worked as secretaries.

Most of America is outraged by the bonuses, but I'm bothered a lot more by the payouts to the banks that bought the CDSs. Yes, I wonder why American taxpayers are bailing out foreign banks, but even more important to me is the question of why the securities insured by AIG were purchased at book value. Who made that decision? Could it possibly have been the very same jerkwads who orchestrated the CDS debacle in the first place, and who now will collect bonuses for "unwinding" the mess they made?

One thing is certain: Geithner, Summers, Bernanke and, yes, Obama all have been entirely too deferential to Wall Street to this point. Unless the President shows some genuine guts and leadership soon, those high approval ratings he's enjoyed so far will plummet like the Dow.

Again, again, again (later)

And so it seems, according to NPR, that Edward N. Liddy, Obama appointed CEO of AIG who testified before Congress today, says the executives who designed and sold the credit default swaps all have been fired -- the guys collecting (or voluntarily giving up part or all of their) "retention" bonus payments in the CDS division are not, perhaps, the same guys who screwed the company and the American taxpayers and the world.

That would appear to sink my "secretary's new filing system" hypothesis -- but it also would appear to sink the "We have to keep them because they're the only ones who understand it" hypothesis. Me, I figure the bullshit still is flying fast and thick. We can't have any names of executives, it seems, because if their names became public they might be strangled with piano wire. (No kidding! That's exactly the justification for secrecy Liddy offered Congress.)

So we must wait, and see, and put our faith in Barney Frank, I guess.

AIG again

How about a real stress test?

So here come another $30 billion for AIG -- but when you take a good, hard look, it's not for AIG. Who is it for? Nobody at AIG, nor in the Obama administration, is being especially transparent about that.

AIG lost $62 billion last quarter, and without another bailout would have had to default on its "obligations" to banks all over the world. Without the bailout, that is, all the idiotic credit default swaps AIG issued would be worthless, and banks all over the world would have to write down a load of bad paper. To wit, the Treasury continues to animate zombies -- not just in the United States, but everywhere else as well.

Naturally, this can't be the last bailout. As AIG continues to pay out claims on credit default swaps, it will continue to hemorrhage money, and Treasury will continue to cough up the vast sums needed to keep it alive -- but, do American taxpayers really want to bail out banks in the UK and Switzerland? How about the France and Germany? How about China?

At the risk of boring anybody who actually reads this blog on a regular basis, I will lay out my AIG prescription yet again. Split the company into it's four component divisions, and take the finance division into bankruptcy -- that is, default on all those credit default swaps. That will leave the "insured" derivatives worth whatever they really are worth. That's a real stress test.

Bailing out our own mismanaged banks is bad enough. We really can't afford to bail out the world.

Speaking of zombies...

Okay, here's a thought. AIG, at this point, is as zombielike as any financial company you can name. Even after two bailout attempts, it remains as good as dead. It's also sucked up enough government money to be mostly nationalized already. So, here's the idea:

Why not nationalize it completely, wiping out the shareholders completely? Shares have so little value left, most shareholders hardly would notice. Break the company in half, with General Insurance, Life Insurance and Retirement Services, and Asset Management in one part, and Financial Services in the other. Sell the first half, which continues to make money, and recover many of the billions of taxpayer dollars now sunk in the AIG swamp.

The Financial services sector then should be taken into bankruptcy, wiping out the debts owed on credit default swaps. Banks that continue to count CDSs from AIG as assets then would be obliged to write them down, and everybody would have a much better idea of just how well capitalized those banks may or may not be.

It's a safe bet that some more zombies would emerge from the shadows. Those, too, should be nationalized by some RTC-like agency, and their remaining assets sold when things start getting back to normal.

I understand that not all financial stocks are held by hedge funds and wealthy fat cats. I have no doubt that both my pension fund and my 403(b) would suffer further losses, but neither one stands much chance of recovery until a lot more light is shone into the obscurity of derivatives markets. Since AIG turned out to be such a central player, AIG seems like a great place to start.