Should some of the same people who helped get us into this Wall Street meltdown mess be relied upon to get us out? And is it OK if the colleagues and mentors of the new Obama economic team make millions and maybe billions along the way? President-elect Obama seems to think that the answers to those two questions are "yes," and "yes"--and his appointments today proved it.
Tim Geithner, the pick to be the next Treasury Secretary, is the current president of the Federal Reserve Bank of New York, where he was intimately involved in all the bailout decisions of the past year, including the decision to bailout AIG, the insurance giant.
Back in October, right here on FOX News, I noted that the CEO of Goldman Sachs, Lloyd Blankfein, was in the room when the bailout decision was made--a decision which, according to The New York Times, protected a $20 billion Goldman Sachs position with AIG. And, of course, Goldman Sachs is the Wall Street firm once headed by the Treasury Secretary Hank Paulson. I compared that incestuous financial relationship to the Teapot Dome scandal of the 20s, but the Obamans don't seem to agree.
Meanwhile, in the words of the Competitive Enterprise Institute economist Jon Berlau, Geithner means "More of the same... more bailouts, more lack of transparency in the bailouts, and more corporate welfare. ... In choosing Geither, Obama might as well have nominated Hank Paulson to another term!"
So when Obama said today of the man he's nominated to lead the Treasury Department, "He will start his first day on the job with a unique insight into the failure of today's markets," the President-elect was more right than he knew.
But there is one figure that looms above them all, a man who was once the boss to both Geithner and to Larry Summers (who was named today to chair the National Economic Council inside the White House) and is the leader of the dominant political-economic school of thought in the Democratic Party today. And that man is Robert Rubin, Treasury Secretary for Bill Clinton and currently the Chairman of the Executive Committee at Citigroup.
As The New York Times puts it this morning, "It is testament to former Treasury Secretary Robert E. Rubin's star power among many Democrats that as President-elect Barack Obama fills out his economic team, a virtual Rubin constellation is taking shape." A "Rubin constellation"--how 'bout that?
But wait just a second here. Democrats might think that Rubin is some sort of financial rock star, but he also helped lead a deeply troubled financial giant, which bet heavily--and badly--on the subprime mortgage market; Citi's stock has plummeted 90 percent over the last year.
Here's a sobering assessment from an article in Sunday's New York Times, "As chairman of Citigroup's executive committee, Mr. Rubin was the bank's resident sage, advising top executives and serving on the board while, he insisted repeatedly, steering clear of daily management issues."
But as the Times noted:
"While Mr. Rubin certainly did not have direct responsibility for a Citigroup unit, he was an architect of the bank's strategy. In 2005, as Citigroup began its effort to expand from within, Mr. Rubin peppered his colleagues with questions as they formulated the plan. According to current and former colleagues, he believed that Citigroup was falling behind rivals like Morgan Stanley and Goldman, and he pushed to bulk up the bank's high-growth fixed-income trading, including the C.D.O. business. ... Once the strategy was outlined, Mr. Rubin helped [former CEO Charles] Prince gain the board's confidence that it would work.
And then, asked if he had made any mistakes at Citigroup, he answered, "I've thought a lot about that. I honestly don't know. In hindsight, there are a lot of things we'd do differently. But in the context of the facts as I knew them and my role, I'm inclined to think probably not."
But now, of course, Citi is a big winner; just last night it received a $300 billion or so (nobody really knows) financial guarantee from Uncle Sam. And the stock, which was below $4 a share on Friday, is now up to around $6. That's a 50 percent increase.
Not bad one for one day's worth of politicking in Washington. And of course, there's much more of that, where that came from.
#2
If all this stuff and all these companies go bust, who 'wins'? Somebody gets to scoop up the real assets underneath it all, and leave the taxpayers and bondholders holding the bag. Inquiring minds want to - follow the money.
#3
There is an group which has even more assets than the US gov IMHO and that is the American Consumer. GM stock drops for a year straight maybe there is a reason. Retail businesses need to start voicing their opinion to stop bailing out crap businesses and turn in bad practicioners else they will be the ones who get screwed..I don't care how much Christmas scent Wal-Mart pumps into the HVAC people know they will be taxed at a greater % of total income so why purchase anything? You businesses like the free market? - then defend it.
#4
The home builders are hurting? I never woulda figured that. They may have had to cut back operations but when the boom was going they had to be making HUGE profits. When they sold those homes at vastly inflated prices they weren't making loans. It was the banks that made the loans and the builders were getting the money. That money has to be stashed away safely somewhere. Somebody's got that money somewhere. It couldn't have just disappeared.
Posted by: Abu Uluque ||
11/25/2008 12:00 Comments ||
Top||
#5
Every business has a certain amount of risk. When things were booming some forgot that and left themselves way overextended. The builders are a good example of that. The Big 3 have a similar problem although slightly different. When things are boom all the employees want more money, but when things go bad nobody is willing to give it up. Ratchet effect eventually makes you uncompetitive.
#5
All the more reasons for them to not get (see:steal) my children's money.
That president elect better get ahold of his contemporaries in congress else he will go down in history but not for the reasons he wants. Hey BO, congress is shitting in your trophey cup - they are acting like toddlers without a baby sitter and know cookies are in the jars.
#7
I don't get it. Why does Citigroup get bailed out and the auto makers don't? Somebody must have the right connections in Washington is the only answer I can come up with. This stinks. Citigroup should FOAD.
Posted by: Abu Uluque ||
11/25/2008 11:38 Comments ||
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#8
Of COURSE there were no red flags as long as interest rates were declining or stable and housing values were continuing to rise. Every $5 bill they bought was turning into a $20 bill. But when interest rates went up and the first person whose adjustable mortgage needed to be refinanced defaulted, they all had to "mark to market" and their $20 bills turned into $2 overnight.
This wiped out all the equity in all the homes in the entire neighborhood because of "mark to market" requirements. This resulted in all the subsequent mortgages that needed to be refinanced being "under water" (home worth less than the mortgage value) forcing people to either come up with a huge down payment for the refinance or default ... which made things even WORSE.
When interest rates are at historic lows, you do NOT put people who can barely afford the payment into an adjustable rate mortgage. This is because when rates are at historic lows, there is a better chance they will rise in the future than fall ... which they did ... and mortgages adjusted up and out of the affordability range of the people holding them.
#9
Repealing that assinine mark to market rule will do a lot to healing all of the bank balance sheets.
I bought my home for $675,000, at a time when it was appraised at $865,000. Now the repo down the street, just like mine sold for $366,000. There goes my equity.
I would personally skin and cut into small pieces the moron that came up with the mark to market rule. It is the single biggest creator of this mess.
Posted by: James Carville ||
11/25/2008 15:04 Comments ||
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#10
JamesC,
Is your bank going to come demand that you immediately make up the difference in your required down payment between what you bought yours for and what the repo down the street just sold for? Or will they just let you keep making your payments? Kind of depends on laws and the terms of your specific contract, though logic says everyone is better off if they don't make 'margin calls' on every upside down borrower in today's market.
The mark to market rule makes sense for many things and if it had been phased in slowly it would have improved a bad picture as all those worthless derivitives would have been weaned from the mark to model rule.
The move to mark to market was the catalyst that blew apart all the phony leverage that had been building up with all those phony baloney mortgage scams like variable rates, balloon notes, etc.
C-patch has it right. This was set up to fail from day 1. Somehow "people" managed to bundle a s**t load of dicey mortgages together chop them up and sell the resulting tranches off as AAA worthy debt.
Investors thought they were so cool buying $10 Rollexes from the street vendor and then using them as collateral (at Rolex prices) to borrow more money to invest in Kartier jewels from the same guy to sell for Cartier prices.
This whole fiasco is a classic example of a scam and remember, you can't con an honest man. As a Ponzi scheme I think they ran up against an honest man.
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Should some of the same people who helped get us into this Wall Street meltdown mess be relied upon to get us out? And is it OK if the colleagues and mentors of the new Obama economic team make millions and maybe billions along the way? President-elect Obama seems to think that the answers to those two questions are "yes," and "yes"--and his appointments today proved it.
But there is one figure that looms above them all, a man who was once the boss to both Geithner and to Larry Summers (who was named today to chair the National Economic Council inside the White House) and is the leader of the dominant political-economic school of thought in the Democratic Party today. And that man is Robert Rubin, Treasury Secretary for Bill Clinton and currently the Chairman of the Executive Committee at Citigroup.
