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Posted on on May 2nd, 2010
by Pincas Jawetz (

We had the following sit in the computer in draft form for nearly a year. We did not post it because I thought Рwait Рwe really may not see the depth of the problem yet. I watched today  Fareed Zakaria interviewing Lloyd Blankfein, the present CEO of Goldman-Sachs, and saw the pits Рthis reminded me of the article.

We heard that the Bush Administration employed ten graduates of the Goldman-Sachs school of doing business while the Obama Administration employs only three. This seems progress, but we learned that Hank Paulsen and Tim Geithner call Lloyd Blankfein to find out what goes on “on the Street” – read Wall Street. There is nothing wrong when the former boss calls the one that replaced him for information – but what if the information helps guide policy in ways the old House likes it? This does not have to be an issue of corruption – it is mainly an issue of business culture. This was not just in the Bush Administration – this is TODAY.

We know that Wall Street is doing fine again – only that most everybody else does not – and some of the meanest misery was exported to others. See Europe – the German and French banks lent to Greece, Spain, Portugal etc. and never checked country policies that might have been very different from their own. Even the EURO, having been structured without common fiscal policy, gets into this hot tub. If Greece falls – so will the German banks that invested in a financially failing situation with open eyes. If Greece fails, what will happen to the EURO? Then how does this compound the German loss. The German loss will then be the US win – after all exchange rates go by who loses least. Having started the ball rolling, the US banking institutions, having already gotten support, can now watch how the Europeans start rolling into the dust. But this is not all – we listen to Mr. Blankfein and realize that more shoes will be falling – so – more institutions will lose credibility and start rolling. There is ample space in the mud – for all of them. Possibly some space in the jails too.

John Paulsen was not the only Wall Street Wizard to figure out how selling of poison bundles will do him good. He was part of that school and stood his ground today explaining that giving rope to others to hang themselves is a good bet for the salesman.What is needed is seemingly the closing of schools that teach such science and for Washington to retain only reformed graduates of such schools. Knowing crime is a positive thing only if beholden friendship to the criminals is a thing of the past.

Perhaps George Soros could be an adviser in such matters to President Obama. Paul Volcker, Joseph Stiglitz are  excellent academics in these areas also. Paul Krugman and Thomas Friedman could further add a line or two.

We get now to the point that real reform is needed by all – in the US and in Europe. Will this ever happen? Will the politicians agree to seek the right track to survival that is not just a game of cannibalism? Will they allow financial reform to proceed?


Arianna Huffington, June 15, 2009

Whistling Past the Economic Graveyard: The Audacity of Misplaced Hope – Banks, Economic Recovery, Financial Market, Geithner Plan, Obama Economic Recovery Plan, Public-Private Investment Program, Timothy Geithner, Toxic Assets…

Is it possible to have too much hope? To be too optimistic? Yes, if that hope keeps you from facing — and dealing with — unpleasant realities.

That seems to be what’s happening regarding the financial institutions responsible for the economic meltdown.


Let’s start with the banks’ toxic assets. When Tim Geithner unveiled the Public Private Investment Program, he said that dealing with these assets was a “core” part of solving the financial crisis.

But the banks would much rather keep pretending that their toxic assets are not that toxic, and worth much more than they really are — a risky charade the relaxed mark-to-market rules allow them to continue to pull off.

So, last week, the PPIP program was apparently scrapped. Does this mean that the toxic assets are no longer a “core” part of the problem? Or that hoping they’re no longer part of the problem will somehow make them no longer part of the problem?

“Hope sustains life, but misplaced hope prolongs recessions.” So says Jim Grant, publisher of the Grant’s Interest Rate Observer newsletter, whom I interviewed last week on Squawk Box. Because of misplaced hope, Grant says, business people, homeowners — and administrations — often refuse to admit the truth and take the painful steps necessary to turn things around.

On Wednesday, President Obama will lay out the details of his administration’s plan to remake the financial regulatory system. Geithner and Larry Summers offered a sneak peak at the plan in an op-ed in today’s Washington Post, proclaiming, “we must begin today to build the foundation for a stronger and safer system.”

Among the proposals: “raising capital and liquidity requirements for all institutions”; “consolidated supervision by the Federal Reserve”; “robust reporting requirements on the issuers of asset-backed securities” including “strong oversight of ‘over the counter’ derivatives”; and providing “a stronger framework for consumer and investor protection across the board.”

The devil, of course, will be in the details. And on how much muscle Obama puts behind pushing these measures through and ensuring they become law without being watered down. Especially at a time when the latest stock market bubble has undermined the urgent push for reform, which seems to have given way to a push to move on to other things and leave that little financial kerfuffle behind us.

And investors seem anxious to do the same. Witness the “fierce rally” in the collateralized loan obligation market. CLOs are made up of sliced and diced assets (including high-risk and junk loans) — and are kissing cousins to the collateralized-debt obligations (i.e. crap) at the heart of the financial meltdown. But according to analysts at Morgan Stanley there has recently been a “remarkable change” in investor sentiment towards these securities, including an “exuberance” for the lowest grade junk being sold.

In other words, we are right back to risky business as usual. No harm, no foul. Let’s get back to the fun we were having before this whole worldwide economic collapse thing started happening.

It puts a whole other spin on the audacity of hope.


Too many in Washington — and in the media continue to take the well-being of Wall Street as the proper gauge for the well-being of the rest of America. Yes, the Dow is up 33 percent since March. But another 345,000 jobs were lost in May, raising the number of the unemployed to 14.5 million, and the unemployment rate to 9.4 percent. Since the start of the recession in December 2007, unemployment has almost doubled.

What’s more, as the charts show it, over the past two decades, the top one percent of Americans has done very well in terms of wage growth. Things have not been nearly as good for everybody else.

Are the reforms going to be sufficiently fundamental to avoid a repeat of the boom and bust cycles, in which only a select few enjoy the boom and everybody else pays for the bust?

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