Saturday, May 22, 2010
As I wrote last October:
Never let a serious crisis go to waste. What I mean by that is it's an opportunity to do things you couldn't do before.
- Senator Leahy said "If we learned anything from 9/11, the biggest mistake is to pass anything they ask for just because it's an emergency"
- The New York Times wrote:"The rescue is being sold as a must-have emergency measure by an administration with a controversial record when it comes to asking Congress for special authority in time of duress."
Mr. Paulson has argued that the powers he seeks are necessary to chase away the wolf howling at the door: a potentially swift shredding of the American financial system. That would be catastrophic for everyone, he argues, not only banks, but also ordinary Americans who depend on their finances to buy homes and cars, and to pay for college.
Some are suspicious of Mr. Paulson’s characterizations, finding in his warnings and demands for extraordinary powers a parallel with the way the Bush administration gained authority for the war in Iraq. Then, the White House suggested that mushroom clouds could accompany Congress’s failure to act. This time, it is financial Armageddon supposedly on the doorstep.
“This is scare tactics to try to do something that’s in the private but not the public interest,” said Allan Meltzer, a former economic adviser to President Reagan, and an expert on monetary policy at the Carnegie Mellon Tepper School of Business. “It’s terrible.”
Not Just Government
But it's not just government . . .
If the too big to fails say that the world economy will crash and there will be martial law unless they are bailed out, politicians - most of whom don't understand finance or economics - will believe them, and sound the alarm themselves.
As Karl Denninger wrote yesterday:[S]ounds like "Bail me out or I will crash everything."
Isn't that analagous to walking into a bank, opening one's coat to reveal an explosives-laced belt, and saying "gimme all the money or everyone dies!"
I noted in November:
In the 1974 comedy Blazing Saddles, Cleavon Little plays the new sheriff in an old Western town. The sheriff is African-American, and when he rides into town for the first time, the [racist] townspeople pull out their guns and are about to shoot him.
But he quickly puts a gun to his own head, pretends he's scared of his own gun, and says "BACK OFF OR THE AFRICAN-AMERICAN GUY GETS IT!!!" The townspeople are dumb and fall for it, suddenly terrified that he'll kill himself. Here's the scene.
That's what Wall Street is doing with the bailout.
The fat cats on Wall Street are saying "give us a lot of money, and buy all of our bad debt for a lot more than its worth, or Wall Street will get it and we'll go into a depression!"
Are Americans stupid enough to fall for it?
In a recent interview, William K. Black uses the exact same Blazing Saddles sheriff-bank analogy.
Miles Kendig has a different - but parallel - analogy for the giant banks:In essence, what we have here folks is a characterization of the banks and the government that has assumed the risk profile of these banks as some sort of 1,000 pound men, unable to move without assistance. They have suckered everyone else into the idea that if anything is done to move these overweight, unhealthy "persons" to health they will have a heart attack and kill us all since they sit upon the crossroads of commerce and have sold most folks the idea that they are the heart of the nation and indeed the world. Given these "objective" circumstance the government is not only beholden to the 1,000 pound persons, but is one of them itself, will do everything to make the rest of us carry them so as to save them the indignity of actually addressing their morbid obesity and the cycle of codependency that enables them all to remain so fat.
Any way you look at it, the too big to fails are not needed and they are dragging our economy into a black hole. Like the sheriff in Blazing Saddles or Kendig's 1,000 pound men, they are playing us for fools.
[Yves Smith] shared another analogy with me: a man with 15lbs. of Semtex strapped to his waist. She says "any surprise people in the vicinity are very attentive to his desires?"
As Bloomberg notes today:
The vote was another victory for the Fed, which months ago faced one of the biggest challenges to its power and independence in its 96- year history as lawmakers responded to public anger over bailouts of Wall Street firms. The amendment Ensign supported was included in the financial regulatory bill the Senate approved yesterday.
“The Fed’s authorities seemed to be under serious threat,” said David Nason, a former assistant U.S. Treasury secretary who’s now a managing director at Promontory Financial Group LLC, a Washington-based consulting firm. Instead, the Fed “appears to have regained its footing and now appears to be emerging with at least as much authority and likely more.”***
The Senate bill contains most of what Fed officials sought. In addition to preserving their bank-supervisory powers, it maintains a ban on congressional audits of interest-rate decisions that some lawmakers had sought to strip away.
The outcome puts Fed Chairman Ben S. Bernanke in a stronger position to withdraw record monetary stimulus as the economy recovers ...
And Tyler Durden provides details of how the Fed blackmailed Congress into expanding the Fed's powers:
A reader provides us with the following letter he received from Senator Mikulski in response to dissatisfaction expressed about Bernanke's reconfirmation. The response from the Senator demonstrates [that the Fed is pressuring] gullible and incompetent senators ... to pass law after law that is only in the Fed's, and thus Wall Street's interests, as the alternative would always be a "market nose dive" ....
Thank you for getting in touch with me about Ben Bernanke's nomination to chair the Federal Reserve. It's great to hear from you.
I was advised that rejecting his nomination would cause markets to nose dive, which would hurt retirees and families saving for their future. I am not enthusiastic in my support. But I think Mr. Bernanke understands the job that he still has to do.
Barbara A. Mikulski
United States Senator
And for the counterpoint, here is an example of a Senator who does not fall for the Fed's racket:
Thank you for contacting me. I appreciate hearing your thoughts about President Obama's decision to nominate Ben Bernanke for another four-year term as Chairman of the Federal Reserve (the Fed). I voted against approving Mr. Bernanke, who was nevertheless confirmed by the Senate by a vote of 70-30.
While I have heard the concerns of many that the failure to confirm Mr. Bernanke would have damaged the financial markets and jeopardized our economy recovery, I do not believe that anyone, including Mr. Bernanke, is too big to be replaced. We should not hold our economy hostage to the Wall Street threat that total economic collapse is the sure result of not doing everything they want.
Thanks again for contacting me. Please do not hesitate to do so again about this or any other issue that may concern you.
United States Senator