Lewis Says More "Liar's Poker" and "Another Day of Reckoning" Upcoming

*****Donations Desperately Needed***** ######Need $600 by tomorrow.###### From my friend and mentor, Danny Schechter, I read this morning that a prominent Enron lobbyist will now shill for the Federal Reserve. See the benefits of hiring Tim Geithner? Without that stroke of Obama brilliance I'll bet things would be a whole lot worse. Michael Lewis, author of Liar's Poker and many other fine investigative works, documents how "the government's rescue efforts have only served to postpone a "day of reckoning" for Wall Street."

I think that we are in for another day of reckoning down the road. I just don't know when it is.

I think that they haven't even properly evaluated the institutions.

They haven't been honest about what these institutions have on their books. They've had phony stress tests.

So, we're in a kind of, I think, right now, in a period where there's a false sense that it's over, that the crisis is passed. I don't think the crisis is passed.

Part of the problem, Lewis argues, is that the architects of the bailout are too cozy with the banks which created the financial crisis in the first place, even speculating that Treasury Secretary Tim Geithner is already looking ahead to a cushy job in the private sector.

"...one of the things that's odd about the current situation is that the people who created the problem are so powerful in deciding what the solution to the problem is going to be. There is a great tradition on Wall Street of making a fortune, creating a mess, and then making a fortune cleaning it up. But to do it on this scale is breathtaking to me.

And it is amazing to me the degree to which, say, Goldman Sachs is intertwined with the Treasury, and how there - there don't seem to be any independent voices in the thick of the decision-making. The decision-making is all being done by people who one way or another might expect to make a lot of money from Goldman Sachs in the future. . .

So, so much for that school of thought. Read the rest (which is not much different from what you've been reading here) here. From Naked Capitalism we read that

“One of the things that has intrigued me about the financial crisis is that it is pretty clear that looting took place at the high end of the financial services industry, yet few have called it by that name, in part because it has been difficult to identify the mechanisms by which it occurred. Looting, as described by George Akerlof and Paul Romer, occurs when business owners go broke at society’s expense (loot) rather than go broke as the unfortunate result of having gambled on success and lost. And looking at Wall Street, the fact set strongly suggests that looting took place, In the old days of private partnerships, firms might blow themselves up on an individual basis, and you’d occasionally see serious industry downdrafts thinning the herd (the back office crisis of the late 1960s, the one-two punch of the end of fixed equity commissions plus the down leg of the 1970s bear market). But having the industry run of the cliff en masse was previously limited to commercial banking. Now when William Black, a senior bank regulator during the S&L crisis, has talked about this phenomenon, he frames it as control fraud, meaning orchestrated in a deliberate fashion at the top level of a firm. While that probably contributed, particularly if an organization was desperate, but I suspect more complicated mechanisms played a big role.” READ FULL STORY HERE

I dearly love Bill Black (not of the Combo - although . . . .) and think he is one of the most (if not the most) trustworthy persons on the scene today (and only wish he were less than honorable). If you can possibly make a contribution, please do so today. Suzan _______________________

(WORD!) Obama/Geithner Pretend (Again) To Regulate Banksters and Pals

From our friends at FireDogLake we learn about the pretend plan to deregulate those lovely derivatives so adored (for the strange reason that they make billionaires out of millionaires) by the banksters.

We must organize and defeat these Treasury plans NOW.

They are not representing the interests of the common citizens/taxpayers. And you know whose interests are being represented.

GET GOING!

Pretending to Regulate Derivatives

By: masaccio

Sunday May 17 Treasury Secretary Geithner has launched a push to install clearinghouses as the weapon against systemic collapse of the derivative markets. As with all of the financial repair missions of the Obama Administration, this happened after extensive consultation with all the people who really believe the financial system should work for the financial elites, and their lobbyists. It doesn't bother them if taxpayers eat clearinghouse losses in the next disaster.

Clearinghouses are supposed to remove counterparty risk by inserting a third party between the parties to derivative transactions. Counterparty risk is the risk that one party can't perform on its obligations under the derivative. The idea is that the clearinghouse will perform if the one party can't. AIG is the example: it couldn’t perform on its credit default swaps, and the financial elites ran crying to Bush and Paulson to get taxpayers to perform for AIG, which worked out well for them, but not so well for the rest of us.

What could possibly go wrong? Well, for one thing, how does the clearinghouse get enough money to perform in the event of an AIG-type disaster, right now in the range of $80bn? One clearinghouse explains that the money will eventually come from the other players in the market. That won’t happen. They’ll just run back to their buddies in the Treasury to get taxpayers to do the paying.

But that isn’t all. Treasury will only force “standardized” derivatives onto exchanges.

Customized derivatives will not be publicly traded; instead, general information will be reported to a depository, which will make some information public, but most will only be available to regulators, and we know how well that works. And there is a worse problem. This distinction was first made by Wendy Gramm, Phil’s wife, when she was head of the CFTC, and eventually the standardized category shrank so much it was drowned in the bathtub when President Clinton signed the law deregulating derivatives.

Frank Partnoy explains the danger in the NYT:

The leading derivatives lobbying group, the International Swaps and Derivatives Association, is already looking to exploit the Treasury’s proposal to split derivatives markets in two. As part of its lobbying campaign to protect negotiated instruments, it insists that last year “the derivatives business — and in particular the credit default swaps business — functioned very effectively during extremely difficult market conditions.”

Sure, as long as you ignore AIG. Oh, and Merrill Lynch. And anyone else we don’t know about because, don’t you know, this stuff is a big secret. Let’s go to the tape. This chart shows free public information on credit default swaps:

Markit Group has developed this free "Last Quote for the most Liquid Credit Default Swaps" pricing report to address a public interest in CDS prices. This Last Quote report is based on the most recent price quote any active dealer in the CDS market provided to its institutional customers before 4:00PM Eastern.

This chart doesn’t tell us anything about how much trading there is in these things. We know nothing about that from public information. Here is the report from ICE, the US clearinghouse. From this we learn that a grand total of 11 CDSs are trading, all of them indices. None of them are single-name references, which is the kind we would find interesting. If that is the public data we will get under the Geithner plan, we didn’t make progress.

And, here is the question no one even bothers to answer: what is the cost-benefit analysis for these things? Yves Smith at Naked Capitalism asks the question in great detail here, and the commenters, many of them knowledgeable, give stock answers. Nobody explains the benefits, it’s as if they are taken for granted. No one says the risk is controlled, they merely say it is reduced.

The financial elites act like they know how to manage risk, they talk about their desire to balance their portfolios by acquiring risk at particular levels and spout gibberish about VAR and “stress testing” and other control measures. Again, we’ve seen how that works out. We also have a theoretical explanation of why their “risk management” is worthless prattle. As best I can tell, the geniuses on Wall Street have only a superficial understanding of the mathematical models on which their trading, and their risk control, are based.

The President and the Treasury don’t have to answer, they don’t bother to explain why this nuclear waste is worth the risk to taxpayers. They just do what the financial elites want them to do. And Congress will join in four-part harmony, dancing to their their Master's tune. Lord knows both groups, Republicans and Democrats alike, have taken enough money that it would really be surprising if they didn’t do what the financial elites want them to do.

Sorry for the large type, but it seemed important. Suzan ___________________