Quote of the Day: Barney Frank Edition

"I do want to add one thing though to your question about those poor beleaguered bankers who have been forced to do so much to keep from not being able to pay their debts, that they can’t lend money. If they really are running businesses that are so stressed that they can’t do their basic work, why are they paying themselves so much money?"

Barney Frank, on Meet the Press

Daily Kos has the video of Frank's MTP appearance. Host David Gregory, former Treasury Secretary Henry Paulson and CNBC anchor Maria Bartiromo were left speechless. These Wall Street apologists couldn't believe Frank spoke the truth about the unjustifiable executive bonuses.

Lloyd Blankfein was at the helm when Goldman Sachs almost went under. In 2012, Blankfein received a $26. million bonus. So much for the saying about cream rising to the top.

Why Reforming the Banking Industry Is Most Important Issue

Reforming the banking industry is the most important matter facing America. The issue takes precedence over health care. There is of financial safety net to more systemic risks from occuring. The Senate Banking, Housing and Urban Affairs committee is tackling the problem. Chairman Chris Dodd has unveiled the ambitious Restoring American Financial Stability Act. The bill would stop regulatory and prevents financial institutions from becoming too big to fail. The bill is already being opposed by the banking industry and Senate Republicans.

Dodd has a long way to go if he wants to win support from the Republican leader. Senate Minority Leader Mitch McConnell (R-Ky.) came out swinging last week, sharply criticizing a proposal he said was not supported by any Republican.

“I don’t think the public is clamoring for us to pass yet another thousand-page bill, and I’m not sure where they’d find the time to do this on the Senate floor, since it’s obvious health care’s going to be the dominant issue for the coming months,” McConnell said.

Republicans do not want to see reforms of the deceptive lending practices being used on mortgages and credit cards. That is exactly what the proposed Consumer Financial Protection Agency would do. The agency would operate as an independent watchdog and inform the public and have the power to stop "hidden fees, abusive terms, and deceptive practices." The bill would end the oversight role of the regional Federal Reserve banks. The banking industry picks those regional Chairman. Former Federal Reserve Bank of New York chairman Tim Geithner has been against a proposal to make the chairmen federal appointments. Dodd proposes a single Federal Bank regulator.

Eliminates the convoluted system of multiple federal bank regulators to increase accountability and end unnecessary overlap, conflicting regulation, and “charter shopping;” keeps in place the healthy dual banking system that governs community banks.

A huge potential hurdle to the bill's passage is a allowing shareholders to have a vote in executive compensation and corporate affairs. Dodd wrote legislation that would cap the executive bonues, of companies receiving bailout money, at $100,000. Geithner had the provision stripped from the legislation. Dodd took heat and Geithner didn't admit he was responsible. Only after Dodd told the media that the Treasury Department pushed to strip the provision was when Geithner stepped forward.

The Dodd bill would give the newly created Consumer Financial Protection Agency the power to investigate and enforce banking regulation. Dodd's idea is this will consolidate federal agencies and decrease red tape. The FDIC and the Federal Reserve will give up their regulatory responsibilities.

The FDIC will focus on its jobs as deposit insurer and resolver of failed institutions, retaining backup examination authority over troubled banks and gaining additional authority to accompany the new agency on examinations of healthy banks and holding companies to ensure it has sufficient information to perform its insurance functions. The Federal Reserve will focus on monetary policy without being distracted by responsibilities for bank oversight and consumer protections. The Federal Reserve will continue to play a key role in assessing financial stability and have guaranteed access to financial institutions and any needed information.

The White House is not thrilled with Dodd's proposal.

Austan Goolsbee, who sits on the White House's Council of Economic Advisers, said he felt some "nervousness" about Dodd's proposal to create a committee independent of the Federal Reserve to oversee risks in the financial system and police potential threats to the economy.

"The administration's view is that systemic institutions ought to be governed by the Fed," Goolsbee said. A different group could be charged with looking at problems on the horizon, "The Dodd version is 'let's combine both of those and create some new agency,'" he said. "I am a little worried that to create that new agency would take a long time and by the time you got to that we are back into this world."

This is the same White House that has been telling Harry Reid to drop the public option, but still supports mandating that every American buying health insurance. The White House is pro-corporatist. The Republicans look at Wall Street as their true base. Reforming the financial industry should have been the first issue both parties addressed when President Obama was sworn into office. America does not have the money for another bailout and the economy is (finally) recovering too slowly. The anger from progressives and tea party protesters is from Washington's bailing out the banking industry. People are scared and turning to clowns like Glenn Beck and conspiracy theories for answers. The public needs to get behind the Restoring American Financial Stability Act. Free markets are a wonderful thing. However, another economic meltdown is not an option.

The Plan for what, exactly?

[Since this post is rather critical of the president, let me preface this with "Speaking only for myself" - tas]

From the Treasury Department:

To address the challenge of legacy assets, Treasury – in conjunction with the Federal Deposit Insurance Corporation and the Federal Reserve – is announcing the Public-Private Investment Program as part of its efforts to repair balance sheets throughout our financial system and ensure that credit is available to the households and businesses, large and small, that will help drive us toward recovery.

The italics are mine. Let me translate this: Nobody in their right mind will invest in banks with their own money right now because the banks are broke. But the country needs banks to start lending again if we expect our economy to get better.

With that in mind, here's the jist of Geithner's plan: The Government begs private investors to front a minimal amount of capital to bid on toxic mortgage assets by saying, "Hey, we'll pay you $6 for every $1 you spend on mortgage debt." This takes bad debt off bank balance sheets, investors are then willing to place more money in banks again because they'll be able to start making loans again.

Theoretically. Unfortunately, this plan raises a lot more questions than it answers.

Wall Street loves it, as evidenced by stocks shooting up today. And why shouldn't they? The Obama administration just told them, "Hey guys, great news! We don't intend to break apart the huge mega banks that got us into this mess, and we're going to give you billions -- possibly a trillion -- in taxpayer dollars!" This people are all for preserving status quo since it makes them rich, and no matter how hard they fuck us they won't be reprimanded.

But the plan might not even work. Currently, it's slated to purchase $500 billion in toxic assets; possibly rising to $1 trillion. This is supposed to clear bad debt off banks' balance sheets, thus allowing investors to place money in banks again since they'll be solvent, thus allowing banks to make loans, etc. But as I've mentioned here before, just with Fannie Mae and Freddie Mac we see, at most, $5.4 trillion in bad mortgage debt. So does the plan address this debt or just the debt from banks that the government didn't have to gobble up, like Citibank and Bank of America? If the plan doesn't address the Fannie/Freddie debt, what will? Additionally, discounting the Fannie/Freddie debt, just how much toxic mortgage debt are we looking at with Citibank and Bank of America?

To give you an idea of the scope of that last question, as of December 2008, Bank of America's total liabilities were over $1.6 trillion; and Citibank's liabilities are almost $1.8 trillion. Will $1 trillion from the Fed/FDIC -- much less $500 billion -- be enough to convince investors to place money in these institutions again? It would certainly be great to know just how much of that $3.4 trillion in liabilities is bad.

The part of this plan that I really find galling, though, is that the government is willing to fork over hundreds of billions to Wall Street to get them to purchase mortgage debt. This is our money, and essentially our money is being used to pay off mortgages -- but by giving it to investors who can afford to put up a few million to pay for them. These investors can then turn around and ask home owners to pay up on mortgages that their tax dollars just bought.

If this is the case (and I could be reading the plan wrong, but...), what's with the middle man? If the government intends to pay for these mortgages, why not just forgive them? Why not just give banks 85% of what the mortgages are worth -- which they should very well be happy with -- and everyone goes on their merry way?

While some will rightly point out that people would get free houses under such a scenario, which they certainly don't deserve, under this plan the business school rejects who placed the economy in hot water are now being rewarded by having the government give money to banks to pay off these mortgages, and turning around to give these mortgages to the business school rejects with instructions to squeeze as much profit out of it as they can. In short, the business school rejects have the potential to reap huge profits off home owners since they paid $1 for every $6 the Obama administration would give them to buy their mortgage.

And you know, I don't think these assholes deserve the money.

The more I think about it, the more unsure I am of exactly what this plan is supposed to accomplish. Do Obama and Geithner (shamefully) intend to give Wall Street what's maybe the biggest bonus in history? But if so, how can this plan deliver such when it may not accurately address all the bad debt that exists? In the former scenario, normal Americans -- you and I -- bend over and take it; but in the latter the plan just doesn't work.

Here's an idea for a plan that could work: restructure the mortgages so their value reflects the median value of a home based on its value from 2005 to the present; adjust interest rates so they are lower; then spend enough money on job creation (like infrastructure repairs) which give people jobs, kickstarting the economy and giving everyone money to pay down their debt. But that plan doesn't give Wall Street a big fat check, now does it?

Makes me wonder what's really important to the Obama administration right now.