Bernanke warns on over-compensation in banking

Ya think? This ship sailed years ago but thanks for joining the debate. The problems start at the top so to ask management to provide proper oversight is a joke. They're the ones who implemented these policies in the first place. How did we get stuck with this dud?

Bernanke, who will appear before Congress on the AIG flap next week, didn't mention any companies by name in his speech, which made a fresh pitch for an overhaul of banking regulations to prevent another financial crisis like the one gripping the U.S. and other countries worldwide.

Regulatory gaps need to be closed, he said. Regulators must make sure financial companies have a sufficient capital cushion against potential losses.

And Congress must enact legislation so that the failure of a huge financial institution can be handled in such a way to minimize fallout to the national economy — similar to how the Federal Deposit Insurance Corp. deals with bank failures. Such "too big to fail" companies must be subject to more rigorous supervision to prevent them from taking excessive risk, Bernanke said.

"Supervisors must pay close attention to compensation practices that can create mismatches between the rewards and risks borne by institutions or their managers," Bernanke said. "Management compensation policies should be aligned with the long-term prudential interests of the institution, be tied to the risks being borne by the organization, provide appropriate incentives for safe and sound behavior, and avoid short-term payments for transactions with long-term horizons."

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Britons abandon dogs as they quit Spain

A pretty disgusting story.

British expatriates are dumping their dogs by the side of motorways or leaving them to starve in boarded-up villas as the credit crunch forces them to abandon their Spanish dream and fly home....

Among the worst cases encountered were pets left tied to balconies or released at popular nature spots in the vague hope that a dog walker might find them and take them in.

"It's incredible," said Maria Stevens, kennel manager at the Adana animal rescue centre. "People find the time to pack up their furniture and other belongings and yet their pets' welfare is an afterthought."

...She pointed to Sally, a cocker spaniel with her nose pressed against the fence. "She's an absolute sweetie but she is suffering trauma after being found in the central reservation of the motorway near the airport. God knows what her owners were thinking."

Recently three small dogs were found in a boarded up villa on the outskirts of Estepona weeks after their British owners left because they could not keep up their mortgage payments.

Having said that, there is this:

Mrs Lago explained that British quarantine laws made it especially difficult for returning British expatriates to take their dogs with them. She said the pet passport scheme, which allows animals clear of rabies to be brought into Britain, can take up to seven months and cost £1,000 in vet and kennel fees.

Still, leaving the animal in the middle of a highway? In a boarded up house? Read the rest of this post...

Things could always be worse

This is what happens when a country goes bankrupt. So far Eastern Europe has avoided such extremes but that game is long from over.

Iceland's central bank cut its benchmark interest rate by 100 basis points to 17% Thursday, as the North Atlantic island nation struggles to recover from a devastating economic crisis. "Inflationary pressures have subsided as demand and employment contract and the króna has stabilized," the central bank said in a statement. "The flexibility of the Icelandic economy has enabled a rapid adjustment of domestic demand, real wages and the trade balance." Capital controls will remain in place until it is considered safe to lift them, the bank said.

Just a wild guess but it may take more than a few months or years go move past bankruptcy and be considered safe. Read the rest of this post...

Nothing is more vicious than a scorned guilt-ridden blond

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Joe the Plumber is "horny"

Why is it that the Republican version of the regular guy is always such an idiot? Whether it's their token "redneck," as Joe the Plumber called himself last night (after he told an assembled crowd in Washington, DC that he was "horny"), or their token woman or minority, they always seem to choose from the bottom of the barrel (e.g., Sarah Palin - yes, she's attractive, but should that really be her top qualification for being president - well, that and a faked accent?) It's almost as if the leadership of the conservative movement thinks that this is what blacks, women, and regular-guys are actually like - kind of dumb and kind of goofy (and kind of into really bad country music). Read the rest of this post...

Exploding idiots

Ben Smith quotes Obama on Leno, who appeared to be paraphrasing someone at Harvard:

Obama, last night on Leno:

When you buy a toaster, if it explodes in your face there's a law that says your toasters need to be safe. But when you get a credit card, or you get a mortgage, there's no law on the books that says if that explodes in your face financially, somehow you're going to be protected.

Harvard's Elizabeth Warren in Democracy's Summer 2007 issue:

It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street–and the mortgage won’t even carry a disclosure of that fact to the homeowner. Similarly, it’s impossible to change the price on a toaster once it has been purchased. But long after the papers have been signed, it is possible to triple the price of the credit used to finance the purchase of that appliance, even if the customer meets all the credit terms, in full and on time. Why are consumers safe when they purchase tangible consumer products with cash, but when they sign up for routine financial products like mortgages and credit cards they are left at the mercy of their creditors?

Your toaster is exploding? My head is exploding.

For all the talk of people being cheated on their mortgages, I have yet to see a single news story about a person being cheated on their mortgage. I've seen stories about a woman with a $1.3m home whose interest rate was a "whopping" 7% (which isn't whopping at all for a home that large). (Oh, and ABC didn't bother divulging that the "poor" woman had a million-dollar home.) I've seen stories about a 30-something couple, who both went to Ivy league schools and decided to buy a house with an adjustable interest rate, and then when the rate went up, just like they were told it would, they couldn't afford it any more. The wife was crying on TV, in her now-empty home, talking about how she and her husband KNEW they couldn't afford the ARM after it went up, but they also "knew" they could sell the house before that and make a killing.

Well, boo freaking hoo for you.

People aren't being sold defective toasters. They're being sold good toasters, and bringing them into the shower to play with them because they're idiots. (These are the same brainiacs who need warning labels on McDonald's coffee to let them know that it's hot.)

I am willing to believe that some people, even a lot of people, got cheated on their mortgages. But for the life of me, where are they? The government is not in the business of making sure I'm not a blithering idiot (in fact, sometimes we even elect them). This notion that somehow mortgages are inherently dangerous products that per se need to be regulated. I just bought a condo. I watched interest rates every single day for two months, constantly bugging my mortgage broker, or whoever she was, about the best rate I could get. At my closing it was clearly explained to me how my mortgage worked. I scoured my finances, saved for years, all to ensure that even if this year is a disaster, I can pay my mortgage out of my savings for at least a good while.

What is the problem here?

Again, I am happy to believe, and do believe, that some people got cheated on their mortgages. But how many news stories do we have to see - how many people do each of us know - who are now skating on thin financial ice because they speculated on a get-rich-quick mortgage, and lost? I have zero sympathy for these people. And presenting it as though "evil" mortgages did these people in, when their own evil avarice and stupidity got the better of them, is increasingly annoying and disingenuous. It also means that whatever "fix" our government comes up with is going to be a bit of a mess if we can't even understand the real problem. Read the rest of this post...

A very funny Flickr page

There are more.



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Why not create incentives for doing the right thing?

I was reading the opinion piece Chris excoriated earlier, and came upon this paragraph that I agree with:

Nor is it fair, as The Great Santelli has declared on CNBC, that homeowners who have paid their bills and have been careful not to take on too much credit are now being asked to provide relief to homeowners who have not. Unfortunately, the price of righteous indignation is a wave of foreclosures, a further decline in home values and billions of dollars of additional loan losses at banks that are already on government life support. Given the financial and economic hits they have already taken, that's a price that most "innocent" homeowners and taxpayers would probably prefer not to pay.

I agree totally. It's unfair for the rest of us, who either scrimped and saved and paid our mortgages on time, or who got mortgages we could afford, or who forwent buying a new home altogether, to have to pay for those who gambled and lost. But... just like with the banking crisis, we're not helping them out of the goodness of our heart - we're helping them to help ourselves. It's an unfortunate fact that if massive numbers of Americans lose their homes, it only hurts the economy that much more.

But. A friend raised an interesting point a few weeks ago. These people, like the woman in the ABC story I wrote about several months ago, who own million dollar homes and are getting their mortgage rates dropped from 7% to 4-point-something. What happens in a few years when they get back on their feet, when the economy is better, when they get a high-paying job, or even just marry someone with money? Will we, the taxpayers, still be subsidizing what is now clearly a windfall for someone who no longer needs the help? (Not to mention, if the rate cut never goes away, there's no incentive to go out and get a better job, sell your million dollar home for a smaller, less expensive one, when the economy picks back up.) I don't claim to be a mortgage expert, but I'd like to see all of these bailouts, at least in the housing realm, do three things.

First, phase them out when the bail-out-ee no longer needs them, or at least in a certain number of years, after the person bailed out has been given enough time to improve their lot, or sell their place.

Second, provide some benefit, some "reward" as it were, to those who didn't need a bailout. Perhaps all those who did the right thing get a one-time tax rebate once the economy is back on its feet. Or they get a special deal on interest rates on their next home. I don't know what. But there ought to be some incentive in the market for doing the right thing, and not just a never-ending incentive to do the wrong thing.

And third, why are we giving businesses money they need to pay back, but giving homeowners cash they never have to pay back? If some people are getting bailed out, for the good of us all, then there should be an expectation that those people kick back in to the system, somehow, eventually. Meaning, they eventually pay a portion of the money back. Or they do community service. Something. But there ought to be incentives for doing the right thing, and doing the wrong thing. Or else I fear we're gonna be here again some day. Not to mention, it's just fair. Read the rest of this post...

Criticize AIG greed and you are waving a pitchfork

That's right. If you are upset with the excessive greed that brought the global economy to its knees, now you are a pitchfork carrying loon. The Post today tells us that we need to sit back and take it for the good of the nation because that's just how it is. Never mind that these people were paid excessive amounts for years and not a single person in authority has asked for that money back. No, that would be unfair and we shouldn't even dream of pushing this any more because unfair is how it has to be.

The Times has a heartbreaking story of one poor chap at AIG who tears up and says "there are children involved" as if his children are somehow different from the children around the country who are now cut from school lunch programs and living in shelters now that the families have been thrown out of their houses. Cry me a river, old boy and lucky for "Jackpot Jimmy" he's rolling in cash to settle the pain. Obviously violence of any sort is crazy and should never be tolerated but let's not get away from the fact that people are furious, rightly so.

Perhaps instead of gawkers driving by the mansions of the AIG bonus crowd, Congress ought to set up a bus trip for AIG people to see the destruction that they have brought to the world. Let them try and feed their families on unemployment benefits. Let them look for lousy jobs at low pay. Let them wonder how they will pay the bills next month and then let's see who is talking about pitchforks. AIG already shoved a pitchfork in the back of America so it's time some in the media quit this pity party for AIG. Read the rest of this post...

Top GOP aide: We don't want to fix AIG bonus problem, because then we can't use it to hurt Democrats any more

From Greg Sargent:

A GOP leadership aide explained this to me in candid terms. The explanation becomes even more relevant in light of the news breaking just now that Tim Geithner acknowledged that Treasury pushed for the loophole to be inserted in the stim package.

The leadership aide said that House GOPers who voted for today’s tax measure did so because they’d calculated that they couldn’t explain a No vote to voters in their districts, particularly after the expressions of outrage from Republicans about the AIG fiasco. But those who voted No, the aide said, calculated that they could explain to their constituents that they didn’t want Democrats to be able to evade responsibility for their role in creating the mess.

Ah yes, they didn't want to fix the problem, and get us our money back, because then the Democrats would "evade" responsibility for George Bush having given AIG the money in the first place last September. Read the rest of this post...

Geithner and Bernanke supported bonuses at AIG

Show them both the door. Maybe Timmy is afraid to upset the friends that he developed during his time at the New York Fed when all of this was building. Let the guy join a club and buy friends but do it on his own dime and his own time. What part of "public" did he miss with "public service"? Geithner works for the American people, not Wall Street.

As early as December, two Democratic lawmakers had vociferously and repeatedly complained about the bonuses, and one of them went so far as to demand the resignation of A.I.G.’s chief executive.

But both Mr. Geithner, and the chairman of the Federal Reserve, Ben S. Bernanke, were preoccupied at the time with multiple crises. The nation’s banks were reeling from as much as $2 trillion in mortgage-related losses. The recession was deepening and unemployment was soaring.

Mr. Bernanke’s team at the Fed and Mr. Geithner’s team at Treasury, moreover, were reluctant to impose what they viewed as “punitive” and possibly self-defeating pay restrictions on companies being bailed out.

In early February, Mr. Geithner opposed a provision in the economic stimulus bill that would have slapped a steep tax on the kind of bonuses that A.I.G. was about to pay.

If A.I.G.’s plan to pay out an additional $165 million in bonuses came as a surprise to Mr. Geithner, it did not come as a surprise to staff at the Treasury, the Federal Reserve in Washington or the New York Fed.

Staff at all three agencies had been in daily communication with each other about A.I.G. ever since the Fed agreed to lend the company $85 billion in September in exchange for almost 80 percent of the company.

In late November, after A.I.G.’s plight became worse and the Treasury jumped in with a $40 billion capital infusion, the three agencies negotiated cuts in bonuses and salaries for many of the company’s top executives.

Officials at the New York Fed carried out the most direct oversight of A.I.G., and they were well aware of the coming bonus payments, said a person familiar with the matter.

When they say "New York Fed" they are talking about Geithner and his team - Geithner was running the NY Fed up until he became Obama's Treasury Secretary. This horror story gets worse by the day. Read the rest of this post...

Ex-Bush admin official: Many at Gitmo are innocent

Former chief of staff to Colin Powell writes on the Washington Note:

[M]any of the detainees were innocent of any substantial wrongdoing, had little intelligence value, and should be immediately released....

[I]t did not matter if a detainee were innocent. Indeed, because he lived in Afghanistan and was captured on or near the battle area, he must know something of importance (this general philosophy, in an even cruder form, prevailed in Iraq as well, helping to produce the nightmare at Abu Ghraib). All that was necessary was to extract everything possible from him and others like him, assemble it all in a computer program, and then look for cross-connections and serendipitous incidentals--in short, to have sufficient information about a village, a region, or a group of individuals, that dots could be connected and terrorists or their plots could be identified.

Thus, as many people as possible had to be kept in detention for as long as possible to allow this philosophy of intelligence gathering to work. The detainees' innocence was inconsequential. After all, they were ignorant peasants for the most part and mostly Muslim to boot.

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Friday Morning Open Thread

Good morning.

Well, it's Friday and we're still talking about AIG. I actually don't mind my tax dollars going to save jobs. And, yes, our tax dollars and the government saved a lot of jobs on Wall Street and its allied industries. It's welfare for the banking class. While I get that our tax dollars were used to save their jobs, not one dime of our tax dollars should go to bonuses. I'm a little surprised at how vehemently I feel this. We already kept those clowns off the unemployment lines. Keep in mind that a lot of people in the banking and finance industry are still getting paychecks, thanks to us, unlike many Americans who are suffering because of what their industry did to our economy. It's so fricking annoying. (Let's hope this experience was a big reality check for Tim Geithner. I'm still waiting to see the genius we were promised.)

Anyway, I see Michelle Obama is going to plant a garden at the White House. That's pretty cool. One note of caution, Michelle: DC has a huge rat problem. Huge. They're everywhere, extremely voracious and constantly raid gardens. Just a heads up in case no one told you.

Friday, finally... Read the rest of this post...

AIG sues US for tax payments

Guess who is paying for this? So besides funding casino gamblers at AIG, we're now funding lawyers who are suing the owner. Even worse it involves money that was being hidden offshore where AIG could hide it. You may recall that the US is actively going after individuals who move money offshore but it's been accepted by business for years. Will someone in Washington please locate a spine and knock some heads at AIG? This episode becomes more sickening by the day.

While the American International Group comes under fire from Congress over executive bonuses, it is quietly fighting the federal government for the return of $306 million in tax payments, some related to deals that were conducted through offshore tax havens.

A.I.G. sued the government last month in a bid to force it to return the payments, which stemmed in large part from its use of aggressive tax deals, some involving entities controlled by the company’s financial products unit in the Cayman Islands, Ireland, the Dutch Antilles and other offshore havens.

A.I.G. is effectively suing its majority owner, the government, which has an 80 percent stake and has poured nearly $200 billion into the insurer in a bid to avert its collapse and avoid troubling the global financial markets. The company is in effect asking for even more money, in the form of tax refunds. The suit also suggests that A.I.G. is spending taxpayer money to pursue its case, something it is legally entitled to do. Its initial claim was denied by the Internal Revenue Service last year.

This comes back to the original problem that many have had with Geithner and company. He is not the person we need for these extraordinary times. We need someone who is much more aggressive about fighting these companies and restoring balance to a distorted and dysfunctional system. Geithner is not that person. Read the rest of this post...

IMF adds to global stimulus debate

Invest in 2009 and 2010 or pay the price for years. The upcoming G20 meeting ought to be full of lively debate though I am looking forward to constructive debate instead of the arrogant lectures of the previous eight years. It's fine that different countries have different approaches though just as some countries were vocal about US "protectionist" policies (while ignoring their own) it's OK for the US to push back and discuss how limited investment by governments will impact everyone else. The problem is much too serious to ignore debate. Maybe the EU can convince Obama that the US needs to actively participate if not lead the movement for global regulation of the banking/finance markets.

The IMF's latest bulletin warned: "Delays in implementing comprehensive polices to stabilise financial conditions would result in a further intensification of negative feedback... leading to an even longer and deeper recession". Stimulus packages would also need to be maintained in 2010, the IMF said.

The fund also issued a stark warning that the collapse of some national economies in central and eastern Europe could still trigger another wave of banking failures.

The IMF's note, prepared for the G20, warns of a sort of domino effect running through the continent via the banking system as problems in nations such as Hungary, Romania, Bulgaria and the Baltic states knock down otherwise relatively healthy advanced economies – including those in Sweden, Austria, Switzerland, Belgium and the Netherlands.

That, in turn, could trigger a further international panic like the one seen on global stock markets last October.

The UK is among those especially exposed to further weakness in property markets, the IMF warned. "Falling home prices and rising defaults in the United States, United Kingdom and parts of the euro area are already exacerbating strains in the financial system," it said. "Mounting lay-offs would further dampen consumption and residential investment."

The Bank of England policy of "quantitative easing" is endorsed by the IMF, which is encouraging the G20 countries to adopt "unconventional measures" to unlock "key credit markets".

Differences on the timing of future stimulus packages have emerged as one of the important obstacles to a stronger international response to the crisis. Despite urging by the US and Britain, the German government and others in the EU have resisted pressure to introduce fresh packages quickly. The IMF suggests all nations implement a fiscal boost of around 2 per cent of GDP, which would create more than 19 million jobs globally.

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UK continues the borrowing binge

The worst part is, they have so few options left at this point. A dramatic change in lifestyle after years of spending on credit is Britain's future.

Economists say the UK seems set to borrow close to £300bn this year and next – £6,000 for every British citizen. That will propel the UK to the top of the international league table for budget deficits and help take the national debt beyond £1trillion (£1,000,000,000,000).

It places the Chancellor, Alistair Darling, in an exceptionally difficult position as he frames his next Budget, to be unveiled on 22 April.

The IMF forecast the UK's borrowing will reach about £165bn next year, or 11 per cent of gross domestic product (GDP), the highest seen since the Second World War. Many independent economists say it could go as high as £200bn as the recession bites.

In any case it will be by far the largest sum among the G20 group of advanced and fast-growing economies, whose leaders are set to meet at a summit hosted by Gordon Brown on 2 April.

Although the borrowing will undoubtedly help to boost the economy in the short run, critics say it will load huge debts on to future generations of taxpayers and will severely limit the scope for public spending and tax reductions in the run-up to the next election and for years ahead.

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American consumers are so selfish

Don't they know it's supposed to be all about the banksters? We need to help the hard luck Wall Street types who have barely been able to scrape together a few million last year. They're suffering badly and need our help to maintain the four house payments, 5 cars and luxury lifestyle so everyone else ought to quiet down and accept that Wall Street's suffering is more than their suffering.

Americans are in a collective state of financial depression as many admit they could only cover their bills for two months at most if they found themselves suddenly jobless, a nightmare more and more worry may come true.

The results of a bevy of surveys found a growing number of consumers are only a couple paychecks away from a household collapse even as many scramble to shore up savings. Rainy-day funds appear to be a distant memory as households burn cash to cover food and energy bills as well as mortgage and car payments.

A large number of households say that even one missed paycheck would spell financial ruin. And even in households that remain well off, the surveys show a festering fear that financial problems are lurking.

"This is flashing so bright red," said Paul Ballew, senior vice president of Nationwide Insurance Co. "Roughly 60% of the population was ill-prepared (financially) before the meltdown."

A MetLife study released last week found that 50% of Americans said they have only a one-month cushion -- roughly two paychecks -- or less before they would be unable to fully meet their financial obligations if they were to lose their jobs. More disturbing is that 28% said they could not make ends meet for longer than two weeks without their jobs.

And it's not just low-income earners who would find themselves financially challenged. Twenty-nine percent of those making $100,000 or more a year said they would have trouble paying the bills after more than a month of unemployment.

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BREAKING: Obama reaches out to Iran

We got wind that Obama was doing something big at midnight, and he did. Though at first blush it might not have seemed that way.

He released a video. To the leaders and people of Iran, on the holiday of Nowruz (New Years). At first, Joe and I thought, huh? A video? That's the big news? But then as you're watching, you realize what's up. He's reaching out to Iran. Something the US hasn't done since Reagan sent that stupid cake in the 1980s. This is actually quite big. It's something Obama said he'd do. Reach out to our enemies. And he did. He did it in a way that doesn't cede any ground. But at the same time treats them with respect. It will be interesting to see how official Washington reacts tomorrow during the day. As an aside, the fact that Reagan is the other president who reached out to Iran may just inoculate Obama from any real criticism from the right. They can knock Obama for extending an olive branch to Iran, but then they're knocking Reagan too.

Here's the video:



Is it just me, or does Obama already look older?

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